Insurance Banks Boost Agent Financing
While insurance industry-sponsored banks were primarily formed to provide banking products for independent agents to offer their clients, an added benefit has often turned out to be easier agency financing for expansion and technical upgrades, early participants in two banking startups agree.
The key is that banks created by insurance industry associations understand an insurance agent's business better than an unaffiliated commercial bank does, often making financing and consulting advice easier to come by for qualified agencies.
"This is a great thing for the insurance industry that has really been needed," said Ed Strenge, chief executive officer of Warren M. Gilderslever Inc. in Central Valley, N.Y., talking about Assurance Partners Bank, based in Carmel, Ind., and affiliated with the National Association of Mutual Insurance Companies in Indianapolis.
"They know you for who you are," observed Ray Bufkin, principal at David W. Baker Inc. in Danbury, Conn., in discussing his relationship with InsurBanc, headquartered in Farmington, Conn., and affiliated with the Independent Insurance Agents and Brokers of America, based in Alexandria, Va. "They tend to treat us as if they were a small bank, where they talk to us and give personal service to our accounts."
Both banks were created in part to provide independent agents with the opportunity to offer banking services to their clients typically sold through commercial banking institutions, but with an understanding for the needs of agents that traditional banks might lack. The concept appears to be working, according to agents and bank representatives.
While commercial lenders are looking for hard assets when assessing the suitability for a loan, insurance industry-sponsored banks understand the value in an agents renewal book of business, representatives for the two banks contend.
"We look beyond the balance sheet," observed Scott Poore, vice president of marketing and sales for Assurance Bank. "This is the area where we think we make headway over traditional lenders across the country."
Because an agent does not have to "educate the bank" about their business, as Mr. Strenge put it, he has found it easier to do his banking with Assurance Bank, which includes loans to upgrade his agencys equipment, and in the future, he hopes, loans to help him with an acquisition plan they are considering.
When it comes to acquisition and perpetuation activity, notes Michael W. Herlihy, chief executive officer of InsurBanc, the moves, in part, are being driven by the transition in generations as younger producers are looking to take over agencies and their older partners begin to retire.
"We are seeing a tremendous amount of inquiries that either have a [perpetuation] plan in place and are looking for financing, or are looking for input on the value of the agency," observed Mr. Herlihy.
The loan volume, points out Mr. Poore, has changed the focus of the institution from providing banking programs for agencies and their employees to market to clients, to working with agencies to decide not only how they would finance an acquisition or perpetuation plan, but also determine if such a plan is in the agencys best interest.
Companies are looking for more premium dollars out of agencies, observed Mr. Poore, and this is pressuring agencies to consider consolidation through mergers or acquisitions. However, when looking at the performance of an agency and making adjustments for market conditions, the bank might find the agency is not as productive and profitable as it was in the past.
The next question is why? The answers, he suggests, might include actions companies have taken that diminished the agencys value. The bank would then work to begin on a business plan to help the agency perform better and, if all works out, improve its position to make it attractive once again for acquisition, or put it in a position to begin to make acquisitions itself and expand its book.
The desire for financing, not only to facilitate acquisitions or perpetuation activity, but also lines of credit to improve office equipment or real estate financing for new office space, has come as a little bit of surprise, said Mr. Herlihy.
"I was surprised [at first], but not any longer," Mr. Herlihy remarked. Independent agencies "have been a neglected marketplace.There is a significant amount of pent-up demand."
Both bank representatives say the size of the agencies involved in bank financing deals can vary from a small agency worth a few hundred thousand dollars, to an agency worth millions. The comfort that agents are finding hinges on these industry-sponsored banks knowing the agency business.
"There is a level of appreciation among the agents that we take time to understand their business, and that seems to be effective," Mr. Herlihy noted.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 29, 2002. Copyright 2002 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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