The banking industry has experienced mixed results in property-casualty insurance ventures, and smaller banks may drive the next round of agency acquisitions, according to consultants.
The observations came during the recent annual meeting of Columbus, Ohio-based Assurex Global Partners by Kevin Stipe and Jim Campbell, senior vice presidents with Atlanta-based Reagan Consulting.
Banks own an 8 percent market share in the commercial property-casualty market, the consultants said. Some 500 banks have invested a total of $5 billion in agencies, and 11 of the top 50 agencies now are bank-owned.
Some banks, however, have divested of agencies. The reasons vary. Some acquired agencies that proved to be underachievers; other agencies were too small to make a meaningful contribution to the bank's financial performance; and some bank-owned agencies were inherited by new ownership and subsequently sold.
Boards of directors of some banks are scrutinizing their agency acquisitions in light of a softer market and historically modest results in cross-selling, Mr. Stipe said.
He added that while the insurance business looked like a good deal in the past, the economic slowdown has changed all that.
Despite market difficulties, however, the vast majority of banks in the business remain committed to insurance, Mr. Campbell pointed out. Some are seeing 50-to-60 percent of non-interest income derived from insurance sales.
Mr. Campbell said banks were not motivated to get into insurance for the purpose of cross-selling, but to drive non-interest revenue.
Mr. Stipe suggested that acquiring banks run the risk of taking the middle-market commercial account for granted. To sell to this market, savvy independent agents and brokers build strong goodwill created over time. Banks need to do the same thing to be successful, he said.
While Mr. Campbell did not predict a return to the heyday of purchases of the early 2000s over the next five years, Assurex Global said, the number of deals is expected to increase with a smaller average deal size.
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