Are you an agent who wants to sell to, or partner with, a bank? If so, you're probably searching for a banker who is interested in the 'bancassurance' arena. Make sure you take care of the preliminaries before you proceed with a merger or partnership.
Where do you start? If you are an agent, you need to know if your agency will be attractive to a bank. A banker needs to be aware of the attributes that may make an agency desirable-or one to avoid.
Type of Agency
My firm has handled many inquiries from both agents and bankers desiring to take advantage of the opportunities that result from a bank's new freedom to offer insurance products to their customers. Most bankers, however, have only a vague idea of the type of agency that's attractive. Meanwhile, some agents haven't considered the more important aspects of what goes into a successful relationship with a bank, which takes more than just being able to run an agency and make a profit.
Agency Traits
If your agency or bank fits the legal definitions and parameters necessary to offer insurance, consider the agency profile that is likely to ensure a successful, long-term relationship with minimal problems. Situations differ, but the following agency traits (both positive and negative) are worth considering whether pursuing a sale of an agency or a joint venture:
Multilocation Agency: If an agency already has more than one location, it will have the operational, logistical, human resource, and automation systems in place for operating efficiently at the bank's location. However, many single location agencies find this transition difficult.
Ability as a Team Player: Independent agents are usually 'take-charge' people. Bankers may be more conservative in their risk assessment of new ideas. These are only generalizations, but each player must be willing to compromise to work with others. An agency with experience in purchasing or merging other agencies may have a strong record as a team player, since it has experience integrating others into the existing organization.
Local Reputation and Goodwill: An agency with a tarnished or high-pressure reputation may not project the image that the bank prefers. Strengthening its relationship with customers is difficult when the players have contradictory philosophies and attitudes.
Quality of the Agency: Quality refers more to management's ability to operate effectively and manage an insurance agency. How good is the agency's track record with its companies? Are its bills and companies paid on time? Has it incurred errors and omissions claims due to sloppy procedures? Does it have good loss ratios? Has it earned any special privileges from its carriers? Do employees and management perform as a team, with minimal problems? Is a productive, ongoing training program in place? Does the agency set and achieve goals? Contrary to appearances, banks find these questions difficult to answer.
Hidden Agency Liabilities: Are there unreported embezzlements? Has the agency paid any E&O claims out of its pocket? Are there potential E&O claims or lawsuits waiting to explode? Does the agency carry an adequate E&O policy limit? Are there family or employee loans that are not properly shown on the agency's balance sheet? Is the agency's book of business or other assets pledged to others through verbal buy/sell agreements? What about the danger that a principal's divorce could financially upset or damage the agency? Do all principals work effectively together? Are key employees near retirement age? Or are many of the employees new to the agency? Is there IRS trouble?
Compatibility With Bank Customers: The agency must have the ability to serve the bank's clientele. If many of the bank's customers are wealth, does the agency have the markets to write million-dollar homes, luxury autos, and place high-limit umbrellas? Is the agency capable of writing investment opportunities for higher income clients? If the bank has many Hispanic customers, can the agency relate culturally? Do any of the agency's employees speak Spanish fluently, to serve those customers who communicate more easily in Spanish?
Profitability: A bank and agency may be required to commit financial resources. An agency with above average profitability may be more capable of meeting its commitment.
Diversity of Company Representation: An agency with quality relationships with several companies may be able to serve the bank's customers more effectively. More company relationships normally translate into a greater variety of policies and situations that can be written. An agency should be experienced in writing, have the company representation to write all lines from Personal and Business insurance to Life, Health, and annuities.
Competitive Pricing: Competitive pricing enhances your ability to write policies. Despite the media's focus on the importance of value-added services, many people still need the assurance that they are paying a reasonable and competitive premium.
Potential Loss of Existing Business: If you now write the insurance for three local banks, will you lose these policies when you become partners with another bank? Will you lose the business and personal policies written for directors of these existing bank clients of the agency? From the agent's perspective, will the gains provided by a new partnership exceed the losses caused because of the partnership? From the bank's viewpoint, any losses of agency revenue should be reflected in the agency's purchasing price.
These are just some of the initial questions that agents and bankers must ask and answer before moving forward with a relationship. If the parties are comfortable with the answers, the gates are open for further evaluation.