Insurer-Related Banks Expand Agent Arsenal

The changes underway at the bank started by the National Association of Mutual Insurance Companies nearly four years ago underscore the new role insurer-owned banks are assuming today.

A total of 262 NAMIC members contributed $12.5 million in start-up capital to get the Assurance Partners Bank up and running in 2001 so that agents representing mutual carriers could have some banking arrows in their quiver.

Bank president Jim Rush, who came on board two years later, said fear of the unknown ramifications of the new era prompted creation of his bank and many of its counterparts.

"The initial issue, as I understand it, was that there was concern with banks being allowed to sell insurance productsthat there would be initiatives made by those selling in banks to solicit insurance products, and so it would put a higher sense of market stress on those relationships already being served by the mutual agents," Mr. Rush said.

Mr. Rushwho joined the bank in 2003 after 20 years in a career that spanned both disciplinesfound that the original charge for the bank was too restricted. "Originally it was only the companies who invested in it, and their affiliates, who could market the banking products," he noted. "So our ability to invest in earning assets was limited."

Mutual insurance company agents were focused on their clients insurance needs and did not know how to effectively market banking products, or did not feel comfortable doing so, added Mr. Rush. Plus, with the bank opening in the aftermath of the spike in prices following the Sept. 11 terrorist attacks, agents had all they could do to maintain their books of insurance business without venturing into new territory, he added.

"It was determined our original mission was too restrictive, so we expanded into community products," Mr. Rush noted.

To facilitate that expansion, the bank approved a merger on Feb. 28 with the Washington, D.C.-based Federal City Bancorp. Banking veteran Stuart McFarland will serve as CEO of the merged operation, while Mr. Rush will retain the title of chief operating officer.

The bank today goes to the indirect market to sell consumer loans along with small-business and real estate loans. In addition, the bank serves producers in 400 agencies throughout the country by providing banking products, as well as providing a source of capital for insurance agencies looking to expand operations. "We feel we developed an unusual knowledge of the insurance agencies and how to loan to them," Mr. Rush said.

Still, today the bank derives "way less than 50 percent" of its income from insurance agents, noted Mr. Rush. "To me, the primary objective is to have a platform that will sustain itself so we can continue to offer the services to those in the insurance business who choose to use it," he said.

Mr. Rush said the bank plans a major initiative to expand sales in the insurance agency market, which includes maintaining a rigorous training program for agents. With $38 million is assets as of year-end 2004, and an additional $10 million as a result of the merger, Mr. Rush said the bank is closing in on its goal to be profitable in 2006.

Meanwhile, MetLife entered the banking business in 2001 with the purchase of a small bank in New Jersey, making it the first insurer to acquire a bank since GLBs passage two years earlier.

While the company began selling its banking products through insurance agents and institutional worksite sales efforts, MetLife today is reaching out to customers via print and online advertising.

According to MetLife Bank CEO Shailendra Ghorpade, this new effort is responsible for about 45 percent of the banks deposits. "What is interesting is more than 90 percent of those customers have never done business with MetLife before," he noted. "So we have attracted a new consumer to MetLife, and many of them are going on to talk to agents."

About 3,000 of the 10,000 MetLife agents have actually sold banking products, while another 3,000 have received the certification to do so, he said. About 35 percent of bank business comes from agents working with their current clients as well as offerings to new clients. "They are using the bank, which offers much simpler products than to start off with a complicated insurance product," Mr. Ghorpade said.

He added that he had no worries bank savings products offer competition to insurance savings products such as annuities. "In our training we make sure we emphasize the difference between the two products and how these products fill different needs for different customers," he said.

But how enthusiastic will agents be in pushing products that will not contribute much to their own bottom lines? "If you look at it from a pure commission basis, this will not pay agents a lot of commissions," Mr. Ghorpade conceded. "But when you look at it from a customer-control perspective, this allows them to control more and more of a customers financial needs. That is very important when you compete with banks and other brokers for your customer."

With $3 billion in assets and $2.9 billion in deposits, Mr. Ghorpade sees the bank as keeping with its long-term goals, particularly with the doubling of the banks deposits last year.

State Farm received its bank charter the year before GLBs passage, and today its bank ranks in the top 1 percent in terms of deposits and is profitable. A State Farm representative, Fraser Engerman, said the banks model is unique in that it relies on the companys 16,000 or so agents to market its products. "While we are attracting a lot of customers who have never had a State Farm policy before, the primary focus is our existing policyholders," he said.

It is not surprising that with insurers entering the banking realm, turf wars would break out over who has the right to regulate this activity. In the past few months, State Farms bank has been attracting the wrong kind of attention from state regulators, who have looked askance at its marketing of its Jumbo CD. Valued at more than $100,000, the Jumbo CD is not federally insured and therefore a securities product, as opposed to a banking product, in the eyes of some states.

State Farm contends that the U.S. Office of Thrift Supervision should be the sole regulator of its agents in the marketing of bank products, as the agency opined last fall when it said it had sole jurisdiction over the sale of the Jumbo CDs in federally chartered banks. However, North Carolina ordered the company to stop marketing all CDs, asserting it was within its jurisdiction to protect consumers.

Mr. Engerman said the bank will comply with the North Carolina order and stop marketing all CDs in the state. In addition, it will comply with state securities registration procedures in 17 other states, while the matter remains in dispute between state and federal authorities.

With insurers entering the banking realm, regulatory turf wars were inevitable.

Reproduced from National Underwriter Edition, March 10, 2005. Copyright 2005 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.