Forget toasters, banks pushing health insurance as account perk

New Orleans CityBusiness, Apr 28, 2003 by Elisabeth Butler

The check is in the mail for Hibernia National Bank checking account customers.

Last November, the bank started sending $5 checks to account holders. When deposited or cashed, the checks enroll customers in a health care plan that is part of the bank's customer-retention program.

The added perk is part of a growing trend where mid- to large- sized banks offer more services outside traditional banking. Now, customers can often get a mortgage for a new house and insure it at the same place.

By offering one-stop-shopping for banking services, insurance and investments, banks can keep their customers from patronizing competitors, said Greg McBride, a senior financial analyst with Bankrate.com of North Palm Beach, Fla.

Once customers see non-banking services at one financial institution, they start to expect them, said Rebecca Spinnato, a Hibernia vice president.

Officials at Progeny Marketing Innovations, Hibernia's marketing partner for the new health plan, said the program has already exceeded expectations.

"The response rate was phenomenal," said Todd Smith, Progeny's director of corporate communications. The Franklin, Tenn., company offers similar marketing plans to about 6,500 other financial institutions. About 2.6% of Hibernia customers responded to the direct mailings, Smith said. The average response rate is 1%.

Spinnato wouldn't say how much Hibernia pays Progeny to administer the wellness package or how many customers the bank hopes to enroll.

Progeny's Hibernia package includes coverage for eyeglasses and contact lenses, hearing aids, mail-order prescriptions, chiropractic services and a $10,000 accidental death-and-dismemberment insurance policy. Checking-account holders pay $5 a month for the services.

Spinnato said most customers who sign up for the program will use the plan to supplement existing insurance coverage.

Customers responded strongly to Hibernia's offer because of rising health care costs, Smith said. Other banks, such as Whitney National Bank of New Orleans, extend similar offers with certain accounts. Hancock Bank of Louisiana offers accidental death-and-dismemberment and life insurance policies.

"The lines of banking, investments and insurance are starting to blur a little. People are trying to decide what kind of financial institution they're going to be," said Dave Collins, a product team manager for Whitney.

Although some banks have been offering insurance products to customers for 10 years, the Financial Modernization Act of 1999 spurred the trend. The legislation removed the trade barriers between the banking, investing and insurance industries.

Hibernia took advantage of the opportunity in buying the Rosenthal Agency, a New Orleans-based commercial broker. The bank recently changed the insurance company's name to Hibernia Insurance and moved its headquarters from New Orleans to Metairie.

Through a grandfather clause, Hancock banks had been offering insurance policies through Hancock Insurance Agency Inc. since 1899, said Chris Roth, Hancock's manager of insurance operations.

When the Financial Modernization Act gave banks the green light to expand such services 100 years later, Hancock was in a good position to grow its insurance business, Roth said.

Banks substitute declining revenues from lending with fee-based and revenue-generating insurance and investment products, said Kabir Hassan, a professor of finance at the University of New Orleans.

"This means banks' bottom lines will improve and we will see their profit margins grow," Hassan said.

With interest rates at historic lows, banks need to find stable revenue sources, said John McCune, a banking research manager for SNL Financial in Charlottesville, Va. "It's all about starting more fee income ... to boost the bottom line."

Fees from insurance policies help balance the revenue volatility that comes from interest-based earnings of loans and savings.

Banks want to diversify their business lines to balance the risks associated with interest-bearing revenue, McBride said.

Analysts said the amount of money banks can earn from selling health packages and insurance policies varies according to how they pursue the product lines.

"It can be the make-or-break between meeting their estimates or not," McCune said.

Not every bank wants to cross industry lines.

Karoline Davis, a Hancock marketing representative, said customers haven't demanded checking accounts with vision or dental benefits.

"We don't have any plans for a product like that now," she said.

Richard O'Shee, state deputy insurance commissioner, doesn't expect the increasing number of bankers mingling with insurance agents to radically change the insurance industry.

"A lot of people like to keep a relationship with the agent," O'Shee said.