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 Mixing Bank and Insurance
Wall Between Banks & Insurance
Training
Possibility of a merger
Much has been written and much has been said. Challenges have existed side by side with opportunity.
Words on paper, profanity from the mouths of insurance agents, bankers and their regulators. But, like it or not our world has changed and it will never be the same again.
Banks will sell lots of Property-Casualty products and Insurance Companies will behave like banks through their associated newly chartered financial institutions. Over 27 Insurance companies are applying for bank charters, and more will follow.
I want to address the issues of banks selling insurance from another point of view. The assumption underlying this article is that the reader is serious about getting into the new market of selling property-casualty lines with banks.
If you are one of the agents who has decided to enter this viable and challenging marketplace then this article is for you. Let's start at the beginning. What information do you need to and where do you find it?
One, be selective in your target bank or thrift. There is abundant information available that is in the
public domain. Good homework, effective reconnaissance and due diligence are the watchwords in this new game.
First as to the information:
1. Decide on your list of likely banks. That is a list of folks that you think you would like to get to know better; and maybe get in business with them, Hopefully, they are community banks with a several branches and they have a presence within one-half days drive of your agency office. The big national banks will be just too difficult to deal with. The big banks are committee driven and are noted for slow and at time agonizing over decisions.
2. Your ideal bank should be a financial institution with assets of between 50 million and 500 million.
I have just described the ordinary community bank.
Go to the Internet. Enter www. fdic.gov. If you're not already on the internet, you will never make it with banks who are looking for partners or acquisitions that have new marketing skills, i. e. knowledge of internet technologies. When the site opens you will be on the Federal Deposit Insurance Corporations home page. Look at the page and then click on locate a bank and then enter in the name of the bank of your choice, the address of it's home office and the state of its domicilary.
When the page opens you will have all of the financial information about the bank that they have provided the FDIC. It is in detail. You can also discover the number of branches, employees and the deposits in their branch operation, plus lots more financial data that will give you an overview of the banks financial operation.
3. The essential elements of information lie in the deposits, loans and capital areas. You want to look at the deposits to determine the opportunity the bank presents.
As a general rule, I believe that there is $1,000,000 of commission opportunity in each 100 Million of deposits. (Life, Accident, Health, Annuity and P/C Commissions) So in a 400-MM bank there are $4,000,000 of commission potential. There may be less commission opportunity in those states where your average auto and homeowner's premiums are low.
I also estimate that the bank has at least 12,000-13,000 customers for each One Hundred Million dollars of deposits. So a bank with 400,000,000 will have about 48-52,000 customers. That is quite a marketplace.
4. Look at the capital section. For each 100,000,000 million of capital the bank should have at least 7.5
million of capital. In some there will be more. If the bank has less then 7.5% capital '85.look at them carefully. Capital is the basic underlying financial support that banks have to have to take the risk of lending their money. When capital is thin the regulators come pouring in administering regulator corrective devices which you really want no part of.
5. The FDIC, as the insurance provider, regulates each bank. If the Bank has National in their name then the Comptroller of the Currency in Washington, D. C. regulates it. If the bank has State in the Name or does not have National or Federal then the bank is regulated by the State Office of Financial Institutions, the State Banking Commissioner or another regulatory agency which is state driven.
6. If the Institution is a Savings Institution or Thrift then the Office of Thrift Supervision in Washington, D. C regulates the bank, usually.
7. The Federal Reserve Board regulates Holding Companies. FED Boards have regional headquarters that you can find by asking the principal regulator listed above.
Why is this important?
Each of the regulators mentioned has a different perspective on the risk they will allow in the institution in terms of insurance and annuity sales. You must know the way the regulator thinks before you talk to the bank.
8. After you determine the regulator, go a calling. Tell them that you are interested in learning about the regulatory process as it applies in their banks if their clients would like to sell the P/C, life and annuity products. You are there to learn not to disclose.
9. As the regulator for a copy of the banks call report. A call report is the most up-to-date detailed financial report that the bank furnishes to the regulator. This is a public document. The regulator generally will make you a copy of the latest call report from the institution. You may want to get the last three years call report so you can compare the bank in terms of time. Are they growing? Are they stale?
10. Now that you have the beginning data gathering completed, go back to the Internet and check the data you have against the filings provided by the bank to the Securities and Exchange Commission. You can find it at sec.gov. If the bank holding company has filed with the SEC, you should be able to find this on the SEC site. Small banks may not have to file with the SEC; but most do. The filing is under their holding company. You will want to ascertain the definitive name of their holding company before you look on the SEC site. You can get this by calling the bank and asking the Secretary to the President for the name of their holding company, if they are under this umbrella.
Now that you have some of the numbers, go to a competent CPA and have him assist you in looking at the data that you have collected. This should give you a picture of the financial capacity of the institution that you are interested in working with. After your analysis decide which bank(s) might be a likely candidate for discussions.
Can you imagine the banker's face when you talk to him the first time, and use the approach of, we have done a thorough analysis of your bank, and feel that you may have the characteristics that may make a good partner for us. Before we go on; however, let me ask a few questions. Ask those questions that the CPA has helped you develop through his analysis of the numbers he has crunched for you.
Lastly, you will want to ask the banker if he is under any regulatory constraints. Is he Y2K compliant? If the bank under any memorandum of understanding, cease and desist order or other restriction that may indicate problems.
By the time you complete this conversation, the banker will look on your with different eyes. You will change from an every day insurance agent to a thoughtful financial decision-maker. Maybe, just the kind of person the bank is looking for. That is, someone who understand the numbers by which the banker is driven.
The second in this series of articles will focus on those things that the Banker may want before they engage in serious discussion. Just remember that they will look at all partners just like they look at your loan application. If all of this is just to complex to follow, give me a call at 225-344-2374 and I will try to explain with more clarity.
WHAT WE WOULD LIKE TO KNOW ABOUT YOUR AGENCY
AND
WHAT WE WOULD LIKE TO SEE IN YOUR PROPOSAL
¨ Please list the management skills, which have been demonstrated by the
principals and managers of the Agency.
¨ Outline the skill levels and productivity of your agent's personnel.
How many CPCU, CLU, ARM, MBA, CPIW, CPIC designations does your agency
currently hold.
¨ Give us an idea of the historical growth of the Agency and current
trends that you have identified as meaningful.
¨ What agencies do you currently perceive as the most competitive, if
so, in what areas do they excel?
¨ What is your general spread of business in terms of commercial and
personal, number of clients, and the like.
¨ Please discuss the mix of products you provide in terms of industries
you currently serve.
¨ What is your agencies underwriting authority and claims payment
authority by company?
¨ Status of any litigation.
¨ Status of any issues before the IRS
¨ Discuss the capacity to configure coverage and respond to needs for
quotations.
¨ What data processing systems are in current use and do you anticipate
any future changes?
DRAFT CONFIDENTIAL FOR DISCUSSION ONLY
¨ Tell us about your marketing efforts. Tell us about your sales
management, follow-up, success and capacity to maintain relationships.
¨ Are you on the Internet? If so, what is your web site URL?
¨ Do you have the capacity to provide Internet quotations as well as the
ability to issue policy binders via download or printing? If not, do you
anticipate this ability in the near future? If so, when or about when.
¨ Tell us something about your locations. Tell us about the resources
you have at other locations.
¨ How would you envision the relationship to work?
¨ What are you willing to do to support the venture?
¨ What compensation would your propose? For what periods?
¨ How would you propose to structure an agreement?
¨ For how long would you envision the agreement? What renewal issues
should be discussed?
¨ Do you have any particular concerns that should be surfaced up-front?
If so, please discuss them.
¨ Are you familiar with the current status of rules, regulations and
laws as they apply to banks selling insurance?
You may want to contact your attorney to secure up-to-date copes of
applicable law from the Commissioners of Insurance and Financial
Institutions.
¨ What is your history of contingent commissions? Identify profit
sharing and
Contingencies you have received by company for past three years.
DRAFT CONFIDENTIAL FOR DISCUSSION ONLY
¨ Provide the last three years financial statements and tax returns.
You can view a 2-hour tape that was taped live before the Professional Insurance Agent’s in Nashville. The presentation is candid; answers tough questions posed by the audience and can answer many of your questions.
From the agent’s prospective.
Hear the truth about banks selling property-casualty insurance.
Learn the problems one might encounter attempting to develop a structure to work with community banks to sell property-casualty insurance to their client base.
Learn what strategies might or might not work.
Discover the real problems in working with the bank regulators.
Learn how banks are rated and where to find the latest financial data on banks in your area.
From the Banker’s prospective.
Discover that the cultural differences between banking and insurance are real, and might work against the relationship.
What strategies might be available? What has worked and what has not? What is the view of the Federal Reserve?
Hear a former regulator discuss the problems associated with the bank regulatory process.
And more...
Order your 2-hour videotape by sending your check now. The cost is $135.00 that includes postage and handling in the US only. Make the check to "Financial and Management Services."
Fred C. Dent, Jr
Or calling Fred at 225-344-2374
Banking organizations countrywide are nearing the end of the merger and acquisition frenzy which has permeated our country in the late 90s. Mega-dollar after mega-dollar has been thrown at owners of financial institutions by larger institutions groping for larger market share and so-called efficiencies. Paying two to three to four times book value has driven stock bank stocks up and up. Many shareholders have basked with delight as they watch their holdings increase day by day. Now that the merger and acquisition phase is coming to an end bank leadership will begin the quest to find non- interest income opportunities as they come to the realization that they cannot squeeze one more scintilla or savings out of their now lean organizations. Fat is not readily visible in most banks. But, you can only cut so much. Many bank customers, particularly of larger institutions are balking at paying face- to-face teller fees and are particularly unhappy with a level of service driven down by the need to justify the costs of buying and acquiring other banks. So, the search is on for those products that will add value to the banks through offering products and services that will round out a bank's financial services program. Many banks today, serve mutual funds and annuities to their clients. Banks have learned to protect their deposit base by leading their interest hungry customers to a variety of investment products. And, many banks have done this with some success while others find it difficult to shift from the basic banking products to new ones. 1998, will, in my opinion usher in the era of the merger of insurance and banking. Long resisted by insurance agents and companies alike due to the fear of smaller, local agents that banks will take their customers. But with the liberalizing of regulatory agencies, in some cases, encouraging banks to sell insurance products many institutions are exploring and learning how to sell property-casualty coverage as well as certain life, accident and health products. On the opposite side of the page insurance companies are exploring banking. As this article is written notices have been observed showing the giant State Farm entering into banking. The National Association of Mutual Insurance Companies (NAMIC) has indicated that they will have a bank funded by deposits of their members. Can it be far behind that we will see many State Farm agents functioning as a branch office or in minimum a loan production for their customers. State Farm as one of the largest, if nor the number one writer of personal lines insurance with their millions of customers could put a dent into the local bank markets. Many State Farm agencies have three to four thousand customers who have come to rely on their "good neighbor" for many financial solutions. It does not take very much of a leap of imagination to see these same customers lined up for deposit and loan services. So, the search is on. Both banks and insurance companies will meet in the arena of new ideas and the crucible of new product competition. The giant bank First Union has already made an alliance with the Hartford CNA, a fine insurance giant is making overtures to a number of agencies and banks touting that there is profit from "fishing form the Bank." Smaller institutions are talking to smaller agents in their hometowns to see if there is a way to make an alliance. But, there are significant obstacles in the way. The first is those agents, usually smaller then their banking counterparts and without capital in depth have a basic distrust of bankers. Many agents feel that they will be gobbled up in the process losing their bounted independence. Bankers typically look down on their insurance neighbors as being that dreaded word, "salesman" that make too much for doing to little. As a matter-of-fact, many bankers of my acquaintance look on agents much like coporate insurance executives. So, as banks search on for non- interest income, we will see groping and exploring. The two industires will come together like two porcupines making love....Carefully. The common ground is, of course, need for additional income. And, there is a common way to develop how these products are made available to the public. The Internet, the World Wide Web offers a neutral ground where the groups can meet. Many companies and many banks are developing their web communication facilities. What better place to pool resources and talents? As one explores the web today one discovers that many insurance companies are up selling products. In some cases one finds agencies selling comparative life rates. Banks, historically slower in changing are lightly touching on personal banking services on the web. So as we rush into 1998, I predict that the merging of web technology with financial services will be the hot item. As more and more, well educated and better financed individuals search for products of "THEIR CHOICE," where the customer is in control one will find a merger of the cultures. And, it is my opinion that the consumer will be better off for it. Hibernia National Bank of Louisiana has purchased another agency. The attached article indicates a move into the Baton Rouge market by purchasing a fine, old line, profitable agency. First American Bank in Vacherie under the able leadership of J. B Falgoust and Frank Bourgeois has purchased an agency and is in the process of licensing about 30 key bankers as solicitors for their Agency, First American Insurance, L.L.C. I was delighted to be asked to train the good folks of First American by providing 32 hours of intense sit-down instruction on property-casualty insurance. I own one of the organizations licensed by the Commissioner of Insurance to teach pre-licensing as well as continuing education courses. Other banks to my knowledge are exploring this new potential revenue stream. One bank in central Louisiana started an agency and in the first eleven months wrote about 850,000 of annualized premiums, or created appx 90,000 of new non-interest dollars. For many years, I was in the insurance agency business all lines of insurance to a diverse client base. Today, our consulting firm provides risk management services, for a fee, to banks and other entities. We have been particularly successful in working with local school boards. If you have an interest in exploring this new business opportunity, give me a ring. Or, check our web site for articles of interest about banks and insurance. 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