Banks Shy Away From Underwriting, But Seek Out Insurance Agency Acquisitions

Leading brokers continue to be the main acquirers, but banks and financial institutions remain highly committed to insurance distribution, even though the number of bank-agency deals declined last year, according to Mr. Lieblein. He sees a period of retrenchment for the banks as their plans to capture a greater market share for their new subsidiaries through cross-selling failed to materialize in the manner they hoped.

"In effect, banks are now fully recognizing that in order to be successful, there must be a clear autonomy between banking and insurance," he said.

Apparently, bankers are getting the message. Mr. Lieblein noted that in 2003 insurance distribution within banks did not sustain the same level of growth compared to the leading traditional brokerage segment, and he did not see this as necessarily a bad thing.

"This de-emphasizes the need for quick growth, which sometimes creates long-term sacrifices among brokers," he said.

Bankers and insurance agency producers will face some cultural barriers as they try to meld their worlds. "We have seen the most successful models where the bank actually has an insurance professional who comes in from the insurance side and is responsible for all the operations. They have a much better sense of what the hot buttons are that make these people tick," said Mr. Lieblein.

Cross-selling expectations can play a big role in the perceptions of success for any bank-agency deal. "I have seen many situations in which the bank will bring leads that are very small or personal lines kind of stuff, and the agencies will say, 'Hey, we only have 25 people or so here, and so we can't go chasing these deals ourselves.'"

For example, many bankers will come in contact with prospects in the construction and real estate businesses seeking what are known as "artisan programs, but many agencies don't want to get involved in that. There are niche carriers who underwrite this kind of business and the agency's underwriters might not want to," Mr. Lieblein explained.

It all comes down to educating the banking professional as to what constitutes a good insurance lead, as many in the banking industry have observed.

But oddly enough, Mr. Lieblein said cross-selling sometimes works better when the insurance client pool is mined for new banking business.

"One of the surprising things is that because the insurance person has a strong relationship with his client, he will have an easier time taking his client to the bank. The producers relationship will usually be stronger than that of some loan officer," Mr. Lieblein said.

For the record, virtually all of the agencies acquired by banks contacted by National Underwriter spoke glowingly of their new relationships, believing that it opens up a new world of business to them, while freeing them from some bureaucratic concerns that could now be handled at the home-office level.

In April of last year, San Francisco-based Union bank acquired Tanner Insurance Brokers Inc. of nearby Pleasanton, one of the largest brokers of commercial lines products in the state, with annual revenues of around $25 million and just over 100 employees.

John Miller, chief financial officer for Tanner, had no complaints about any cultural barriers arising between the bankers and the insurers. "I don't think we could ask for a better partner. The client footprint was basically identical in terms of client demography and the fact that they really had a strong commercial banking presence, which is what we do," he said.

Mr. Miller has no problem with Union's commitment to cross-selling. "They have been making introductions to their client base, which is obviously a lot bigger than ours. I think this is the one instance where the synergies are really there."

With commercial insurance brokerages in Orange and San Diego counties in Southern California, the once former rivals now had to form one seamless entity under a new corporate parent. "It works on a regional territory basis. It is pretty loose. We have the Bay Area and they have the L.A. Basin and San Diego," Mr. Miller said.

On large middle-market accounts, teams of bankers and insurance producers will go out and meet with the client in an attempt to gather all of the client's business. "But that is a much slower gestation period. It takes a lot longer to develop the levels of trust that you need across the two cultures," Mr. Miller said.

Now the agency is attempting to market insurance to the bank's entire base of about 120,000 small-business accounts on an incremental basis. "I haven't really found that the culture is terribly different. They are a little more formal and the business is more heavily regulated, but insurance is heavily regulated also," Mr. Miller said.

For David Stoudt, the recent acquisition of the employee benefits brokerage agency his father founded in 1989 in Lancaster, Pa., by the Sterling Financial Corp., based in the same city, meant access to customers they could only dream of before. "We were growing quite nicely before this, mind you, but with this acquisition we have a kind of feeder system that just did not exist before," Mr. Stoudt said.

Eventually, he would like to see a Stoudt Advisors account executive in all of the regional manager offices of the bank that has 55 branches in eastern Pennsylvania and northern Maryland. For now, however, the challenge is educating the regional managers of the intricacies of the employee benefits business to better introduce the Stoudt brand to their clients.

In addition, Mr. Stoudt found that a new wealth of business experts to bounce ideas off of also proved invaluable. "Before it was just kind of me and my father," he said.

One thing Mr. Miller and Mr. Stoudt were unanimous on was that moving from the private sector to the world of public companies is no fun in the era of Sarbanes-Oxley, particularly when it comes to the work involved with the new reporting requirements.

Mr. Miller said that the producer mentality looks askance at any effort that does not produce bottom-line results. "But I suppose staying out of jail is a worthy business objective," he said with a laugh.

Reproduced from National Underwriter Edition, September 23, 2004. Copyright 2004 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.