Post-Deal Integration With Banks: Challenges And Opportunities

by Robbie Smith

The acquisition of independent insurance agencies by banks has revealed a number of crucial issues that should be considered by anyone contemplating entering into or expanding their existing insurance distribution. The following issues have proven true for banks of all sizes and agencies:

• The acquisition of an agency is simply the most visible part of a bank's comprehensive insurance strategy. The typical acquisition won't necessarily expand the list of products and services offered to customers.
• Being acquired by a bank often makes a strong agency stronger and a weak agency weaker. Experience has shown that agencies are likely to continue to operate at a level consistent with their historical performance.
• It takes time and a great deal of trust on both sides to develop synergy between banking and insurance. While senior management might support the cross-selling of insurance and banking, the trust needed to facilitate sustained referral activity takes months to build and is easily lost.

Banks have chosen a variety of methods for distributing insurance products. The recent 'Study of Best Practices of Leading Banks in Insurance,' conducted by the Association of Banks-In-Insurance and Reagan Consulting, indicates that while acquisitions are frequently the centerpiece of a comprehensive bank insurance strategy, third-party marketing, joint ventures, and other means are used extensively. Banks often initially focus on certain products and exclude others from their portfolios of offerings.

There are also significant differences in the economic models of various product lines. Many banks find that the acquisition of an independent agency specializing in Property/Casualty and Group Life and Health products is the most expensive and most visible part of their insurance distribution. Yet banks will employ different strategies for their own products, such as Life insurance, Long-term Care, annuities, and Credit insurance, all of which make significant contributions to overall earnings.

Banks have often given too much pricing consideration to agencies that lack key core competencies, such as the sell culture, use of automation, or appropriate expertise to pursue existing bank customers. When financial results start to erode, the bank may come to the sad realization that the agency doesn't have the management capacity or know-how to develop the necessary skills. Bank management is then forced into a rehabilitation mode with the agency, a role for which it's usually ill-prepared.

Well-managed agencies, however, often produce the opposite results. The best-run banks and agencies have found that opportunities they didn't even think of during pre-deal discussions begin to develop. Strong producers and managers create opportunities in any environment.

Most industry experts would agree that in the realm of financial services, banks and insurance are more like first cousins than like siblings. Both parties can leverage opportunities for the other side, yet common ownership doesn't guarantee success.

Bank officers are unwilling to expose some of their most significant and profitable banking relationships for the chance to earn a small referral fee on insurance activities. Conversely, many of the very best insurance accounts, such as contractors, trucking companies, and other higher-risk businesses, tend to be poor banking relationships. In other words, there's a great deal of synergy between the two industries, but meaningful and obvious roadblocks to product cross-selling have emerged.

Some banks have found that insurance agency personnel don't treat bank customers with the same degree of care, professionalism, and responsiveness they accord to their own clients. The result, not surprisingly, is significant impairment of the bank/agency relationship in regard to sharing information and referrals. In this situation, common ownership creates more of an impediment than an opportunity for sales.

With proper management and realistic expectations, the blending of banks and insurance holds tremendous promise for expanding the scope of products and services available to clients as well as significant financial returns.

Robbie Smith is a consultant with Reagan Consulting, Inc., advisors to the insurance and financial services industry. He can be reached at (404) 233-5545, Web site www.reaganconsulting.com.