Banks, Agents, And Profits

BANKS, AGENTS, AND PROFITS

by Paige Proctor

A recent survey by the IIAA and ABA (American Bankers Association) showed that 70% of bankers and 57% insurance agents think they can operate together and profit. Based on the joint operations I have witnessed so far, even more optimism is justified, provided that everyone enters the venture with solid planning and realistic expectations.

Let me share some observations based on two years of experience helping agents and banks come together as joint enterprises or with the agency acquired by the bank.

Agents and bankers alike should be concerned about whether they can come together, create a good solid marketing plan, and then make enough sales so everybody involved can profit. This mutual goal can be attained if the agency and bank meet these criteria:

1. The bank cannot pay an exorbitant amount to acquire the agency. Banks should have their accountants calculate the ROI/ROE cost and earnings ratio before making the purchase.
2. The bank and the agency must be absolutely serious about developing a marketing plan. Its implementation demands a 100% effort from both organizations, including all their employees.
3. Sufficient time must be allowed to generate acceptable levels of sales. It takes time for the cultures of the agency and the bank to blend, generate trust, and produce results.
4. If the arrangement between the bank and agency is a joint venture or affiliation, the bank's share of the commission must be fair but not excessive, because the agency has higher operating costs after creating higher levels of sales and service to accommodate the partnership.
5. The equity split between the agency and bank on the customer list must also provide an incentive for the partnership. The participants must understand that they're building a future value in the customer list.

The following chart illustrates the possibilities of profitability. Note the correlation between bank services, insurance products, and revenues.

This chart reveals several interesting facts. First, we have projected only a 5% to 30% penetration, and a five-year time frame in which to produce these results. In addition, this chart relates only to new business sales and therefore does not show the accumulated effect of Property and Casualty renewals.

To apply this projection to your agency, you need to add your cost of agency operations into the total revenues. Recognize that a lower incremental cost of doing business will result because of the convenience of marketing to the bank's customer base. Also, expect a slightly higher closing ratio on this enterprise because of the relationship already existing between the customer and the bank.

I admit that these are only the first stages in the science of projecting agency/bank profitability from insurance sales. However, underlying all the theory is the common-sense realization that the business can profit if the agent and bank execute a successful marketing plan.

State legislatures and Congress need to create more laws regulating banking and insurance industry partnerships. For our part, we need more experience in both industries before all the questions are answered, but I believe that combining the strengths of two financial service entities-banks and agents-represents a tremendous opportunity.