Headlines in trade magazines and major newspapers announce thrift charters being approved for insurance companies, agreements being reached between federal bank regulators and state insurance departments, and financial services reform. In many ways, banks continue to increased their involvement in the Property/Casualty insurance market.
Although consumers can benefit from this trend, it's important that all state and federal regulators be involved in this process. The ultimate goal, after all, is to protect consumers while creating a marketplace environment that allows agents, companies, and insureds to benefit from insurance transactions.
Why partner in the first place? Because of their contacts with private and business clients, banks often are involved with their customers at the point at which insurance decisions are required. This provides banks with the opportunity to be at the right place at the right time for selling P/C insurance.
Executives at both Travelers and Citicorp were very aware of this fact when they decided to unite. They recognized an excellent opportunity to expand revenues by taking advantage of the best both markets have to offer. In the end, this relationship should provide customers with a good one-stop shopping approach to many of their financial needs.
Even though the Travelers and Citicorp merger (now known as CITIGROUP) is huge, it probably won't be the dominant force in P/C and banking relationships in the United States. The average person will most likely be affected by independent agent and regional bank relationships, since most consumers are already comfortable with both of these business relationships.
CUSTOMER CONVENIENCE
Positive aspects of banks selling P/C insurance can be found in the dealings many people have in their personal lives. For example, new vehicles often are financed with banks. Because of state motor vehicle requirements, Personal Auto insurance is mandatory when registering a vehicle. This situation provides banks with an opportunity to service more customer needs-all in one location.
A similar scenario plays out when a bank customer seeks financing for the purchase of a home. Because Homeowner's insurance is needed, the bank has an opportunity to provide customers with a one-stop shopping approach to one of the most stressful personal financial transactions many people make: buying a home!
On the negative side, banks need to realize that selling P/C insurance requires serious marketing. Banks also need to be aware that P/C insurance products are very different from traditional bank products and services that focus on money management and asset accumulation.
THE AGENT PERSPECTIVE
For years, independent agents fought hard to maintain a barrier between agents and banks. The U.S. Supreme Court's Barnett Bank decision in 1996, however, changed all that. Even the independent agent associations no longer oppose the involvement of banks in the insurance process.
Several independent agents I've spoken to recently see a business relationship with a bank as positive. This is especially true in small towns where the local bank concept still exists. An example is a recent relationship established between Van Den Huevel & Fountain Agency, a full-service independent insurance agency, and the National Bank of Sussex County, both located in Branchville, NJ.
When deciding to develop a relationship with a local bank, Van Den Huevel & Fountain looked for a bank with the same culture and attention to detail they had always maintained. The agency's success to date is hard to measure because of the briefness of the relationship, but a mix of Personal, small Commercial, and Life insurance policies have been sold so far. 'As far as the future is concerned, we see the [bank and agency] relationship as a growing part of the agency's business,' said Rhea Fountain III, president of the agency.
John Willemsen, president of Advantage Risk Management Services, Inc., in Kinnelon, NJ, is an MGA providing a host of insurance and risk-management programs for school board and municipal accounts. He sees many advantages for both banks and agents.
'Today's insurance market is certainly a dynamic one,' Willemsen said. 'The consolidations and mergers of large brokerages and those of insurance carriers have made doing business in today's market very competitive and constantly emerging. Combine this synergy with the entire banking and insurance issue, and I feel the market dynamics will continue to expand.'
The trend for regional banks to become more involved in the P/C insurance market will certainly continue to grow. A bank's ability to provide insurance services to customers seeking financing for a car or home in a one-stop fashion makes sense only if the service meets or exceeds the levels that consumers currently enjoy with their insurance broker. If banks are successful within the Personal and small Commercial marketplace, they'll certainly look to larger Commercial accounts. Banks seeking to work with large accounts, however, will need to remember that agency relationships in this area are more intense, involving more extensive service and expertise. Agencies must prove their worth daily and continually exceed customer expectations.
A COOPERATIVE EFFORT
Agents, insurers, and banks will need to work jointly to develop products and services that bring value to the insured. Convenience to the customer is a positive part of a bank and agent relationship, but if both parties don't provide value to the transaction as well, then the ultimate benefit to the insured is negligible.
An example of this potential value can be seen in a friend's recent experience. This person had an opportunity to start a home-based business, and visited his local bank to open accounts and obtain financing. To his surprise, this bank had established a relationship with a local independent agent, who collected the information necessary to obtain a quote on a home-based business program. Before his accounts were even opened, my friend had been given quotes from two insurance companies.
Research shows that the potential for success of banks involved in the P/C insurance process is high-their customer knowledge is certainly conducive to cross-selling. Only one thing is certain, however: Any advances on this relationship will mean nothing if consumer confidence is not monitored and addressed by the banks, agents, and insurers looking to establish and maintain bank relationships. Fountain, Willemsen, and many others agree that we're seeing the beginnings of an opportunity-laden relationship.
LOOKING AHEAD
Agents also need to see this as an opportunity to help shape the changing market. Partnering with local banks is just one step an agent can take. Several agents I know who have taken this approach have seen an increase in business as a result. By forging a relationship like this on a small scale, agents have a way to at least control their local market, and time has shown the positive effect grass-roots efforts can have.
Whether this union is made in heaven remains to be seen. But one thing is certain: Insurance agents and banks need to make the best of the situation, because at this point it appears that annulment is out of the question and divorce is not an option.