Banks are buying agencies, agencies are developing relationships with banks, insurance companies are opening banks, and a dozen other types of relationships are being developed to meld bank and insurance customers. Offering banking and insurance services makes strategic sense because the more services that clients purchase from one business, the more likely they are to stay loyal to the business. Also, once a customer buys one product, it's more likely that he or she will buy another-and the first service purchased is the least profitable, while secondary purchases have high profit margins. Since insurance and banking are both considered financial services, combining them seems logical.
However, before entering a serious, binding relationship with another entity, ask yourself why you're joining forces-and take an objective look at your answer. Consider these two examples:
- I recently met with an agency and a bank who were working to form a strong strategic relationship. They were located in a small Midwestern town and had been in business with the same owners, officers, and producers for many years. I asked them, separately, why they wanted to join together. They offered identical responses: 'So we can sell to the other's clients!' Think about their response. They were in a town of 7,500 people. They knew everyone in town. In all those years, had the agency somehow been prevented from contacting the bank's customers? Will the bank somehow get more customers because they're affiliated with the agency? Of course not! They simply don't need this relationship because they already know each others' customers.
- I asked the principals of another agency why they were considering joining with a bank. They responded, 'To make sales easier-because once a customer buys one service, they're much more likely to buy another.' This is absolutely true, but think about it: Why not just sell more policies to your current clients? The average customer spends $1.50 in other agencies for every $1 he or she spends in an independent insurance agency. By completely cross-selling 25% of their clients, an agency with $3 million in written premium can increase sales by $1,125,000! Without a single cold call, an agency can increase sales by 37.5% just by selling to its current clients-and it can do this without entering into a legal, binding relationship with a bank.
If you're joining forces with a bank because it represents a new and untouched source of leads or because you think selling to the bank's customers will be easier than cold calling strangers, answer these two questions first:
- Have I completely cross-sold my own book (an average of 1.6 policies per Personal Lines account and 2.1 policies per Commercial Lines account)? If the answer is 'yes,' the relationship may have possibilities. If the answer is 'no,' clean up your own book first.
- Have I had the opportunity to contact the bank's clients in the past? If the answer is 'no,' a true opportunity exists. If the answer is 'yes,' then either they did not buy or you have not contacted them. Either way, why will a relationship with a bank make a difference? (Simply 'because they are the bank's customers' is not an acceptable answer!)
In specific situations, great opportunities exist for profitable relationships. For instance, selling to a bank may offer a way out for an agency owner who wishes to perpetuate, and many banks are paying too much for agencies. Both are good reasons to sell. However, an agency/banking relationship is not a magical panacea for more growth and profits. Take a careful, objective look at the reasons for joining forces. Perhaps the real opportunities lie closer to home.