BANKS AND INSURANCE: DOING IT RIGHT
by John Graham
When a bank buys an insurance agency it's a marriage made in heaven. At least, it seems that way. On the agency side, principals have the opportunity to cash out at a time when values are declining. For those wanting to remain in the business, a bank offers a needed infusion of capital.
Nearing retirement, the principals of one large agency were close to having their backs against a financial wall. Others in the company were either unable to buy their stock or had no interest. Then a bank with plenty of cash rode in and swept the partners off their feet. The deal was done in near-record time.
Many bankers seem overjoyed at the prospect of owning insurance agencies. In fact, it's become fashionable, even trendy. There appears to be something of a lemming effect. Big banks are buying big agencies and smaller banks are grabbing the smaller ones. One $500 million bank made headlines by purchasing not one, but two hometown agencies at the same time. The photo accompanying the news story was all smiles.
There are good reasons why bankers and insurance agents should join forces to attract and hold customers. One-stop shopping offers consumers what they want more than anything else today-time-saving convenience. And who can forget the biggest prize of all: those bank customers who'll be given the opportunity to buy Homeowners, Auto, Disability, Life, Boat, and Business insurance from the bank-owned agency, as well as equity products. At the same time, insurance agency customers will be presented with an array of attractive banking services.
Wal-Mart is going into banking in a big way, so why shouldn't banks get into insurance? Actually, it's nothing new. Insurance agencies have long been in close proximity to banks. Once customers had their mortgages approved, the bank president said, 'Now, Joe, you're going to need insurance on that new house. Why don't you go upstairs and see Tom.' Grateful for the loan, the customer marched up one flight and bought Homeowners coverage.
Although there's no reason why banks shouldn't be in the insurance business, these two differing cultures can be in conflict. On the one side, banks have long used 'attraction techniques' to lure customers, an approach that's foreign (mostly because it's illegal) to the insurance business. Whether it's attractive interest rates, convenient office or ATM locations, free checking accounts, or even free gifts, banks are used to pulling customers. Constrained by state regulations, selling insurance is just the opposite. Rather than attempting to attract customers, agencies have aggressively gone out to grab them. It's the old story of people crossing to the other side of the street when they see the insurance agent headed toward them.
Culture conflicts are real. For example, how will bank customers react when they're approached by the insurance side of the house? How will they feel about the insurance people having access to their financial records? Are bankers betraying a basic trust, even though everyone is part of the same organization? In other words, there's a certain reality to getting into the insurance business: It's not about owning an agency; it's about selling insurance. Another twist is the way a bank perceives the role of its insurance agency. A bank undoubtedly views it as a profit center, but the facts suggest that agencies are not as profitable as they were in the past. Commissions are down and a soft market has driven premiums lower. Although agents continue to hope that the market will turn, most experts doubt that it will happen any time soon. Contingency commissions from carriers have saved more than one agency from financial despair, but there's reason to believe that this annual shot in the arm will be less potent in the years ahead.
There's more than enough room for improving agency productivity, but it has become extremely expensive to do so. A number of bankers are finding themselves bankrolling needed system improvements. If banking and insurance are to enjoy a mutually beneficial relationship, a special environment must be established. Here are some guidelines for this relationship:
Banks can't view the insurance organization as an outsider. Many banks with an insurance agency relationship don't know how to deal with this new service. Even though most bankers tend to keep the insurance people at arm's length from the customers, having an agent in the lobby isn't the answer.
One bank refused to permit the in-house insurance agent to approach customers obtaining a mortgage. The bankers were clearly uncomfortable, fearful that it would be seen as too pushy. 'What will the customers think?' they asked. Even so, everyone at the bank was surprised when few insurance policies were sold to those obtaining mortgages. And through it all, the bank customers were confused by the presence of the insurance agency operation because no one had the courage to talk about it.
Make the banking-agency relationship seamless. One of the major mistakes made by some banks is assuming that, somehow or other, the idea of buying insurance will 'ooze' into customer consciousness. Allowing insurance people to mine the bank's customer base is essential. You can't meet customer needs without direct access to customer information.
Sharing customer information is the crucial issue if products and programs are going to be designed to fit specific customers. Selling insurance has nothing to do with using thousands of 'statement stuffers.' That's an antiquated, useless technique because it's the antithesis of personalized communication. The issue today is focusing on individual customers' needs. If a bank can add value to its relationship by helping customers reach their financial goals and lifestyle objectives, it's doing its job. But this can't be accomplished without direct access to the right data.
Marketing must precede selling. Some banks seem embarrassed to be in the insurance business so they try to hide it as much as possible. This approach only causes confusion and doubt. Let customers know why you're doing it. People don't change their behavior quickly, for which we can be grateful. Customers will tolerate even poor service rather than make a change. There's no reason why they should jump to buy insurance from a bank just because it bought an insurance agency. The demanding task is to stay the course. Cultivate customer interests and allow them to become comfortable with the new services and products.
Stop thinking 'lobby.' A major mistake is viewing the bank's lobby as the place to sell insurance or financial products. What percentage of customers visit a lobby today? By design, fewer and fewer. It's expensive to provide face-to-face service. Besides, those who appear in a teller line might not be the best customers, although they may be the ones who take up the most time.
In other words, it seems that some banks entering the insurance/financial services field tend to look for sales from customers they can see. It's only by focusing attention on customer data that insurance will be sold. Banks can sell insurance successfully, but everyone must recognize the substantial cultural differences between a bank and an insurance agency, which can't be glossed over or ignored. However, customers will see the selling of insurance and financial products by a bank as valid if they feel that everyone involved is attempting to understand and meet their needs.