Bank-Agent Mergers: Never A No-Brainer

Banks of all sizes and types have entered the business of selling insurance, and many more are anxious to get into it. Banks across the country are buying independent insurance agencies, and the number of deals grows every month.

What's driving this trend? Banking is a slow-growth business today, and bankers are searching for synergistic ventures that can add fee income and make their profits grow faster.

Insurance sales makes sense because of cross-selling opportunities. A combined bank and insurance agency should be able to sell more products and services than two separate entities.

Every bank has customer information that's like gold to a good insurance agent. By mining this information, agents can sell more insurance to bank customers than they could to strangers.

By combining forces, both the bank and the agent will come out ahead–if the deal has been structured properly, and there's a good fit between the bank and the agency.

But that's a big “if.” A merger is far from a no-brainer. Bridging the cultural gap between bankers and insurance agents takes intensive effort and planning. Unless both parties understand what they're getting into, a merger won't unleash the potential.

Bankers must understand how insurance agents and insurance regulators think. They must understand that insurance agents are sales-driven entrepreneurs–and give them the freedom to do what they do best.

In turn, agents must understand that bankers view themselves as responsible fiduciaries safeguarding their customers' money. They need to understand the exceptionally stringent regulations under which banks operate.

Here's one example of such a cultural gap. Insurance companies often reward their top producers with trips to conferences at fancy resorts. Sending agents to Cancun in January might be an accepted practice in the industry, but some bankers view such perks as bordering on corruption, and they worry how banking regulators will react. An issue like this can be a deal-breaker.

The banker and the agent must keep their eyes wide open and carefully assess each other before getting hitched. In addition, to assure success after the merger, they need a sound business plan and strategy.

None of this is simple. A multitude of issues must be hammered out. (See the sidebar with this story for an outline of some of these due diligence issues.) Agents shouldn't be overconfident. Selling an agency is not like selling a policy. It takes an entirely different set of skills to get the best price and terms.

Insurance sales is a natural fit for banks looking to expand their offerings and increase revenues and profits. A well-run agency can produce a 20 percent annual return or more on the bank's investment.

As a former insurance agent myself who acquired several agencies, and who has structured many transactions for banks as an acquisitions-and-mergers consultant, I know first-hand that merging with a bank can pay off handsomely for the agent as well.

With the financial backing of a bank, access to the bank's customer list and a solid business plan, agents can take their business to the next level and make more money than they thought was possible.

Jerry Vigneron is managing director of North Bridge Advisors Inc. of Concord, Mass., a consulting firm that helps community banks identify and evaluate insurance agencies for acquisition and make the transaction work. He can be reached at 978-369-6924 or via gcv@northbridgeadvisors.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 15, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Bank-Agent Mergers: Never A No-Brainer

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