BANKS AND P&C INSURANCE

Blending banking and insurance not
the apples-and-oranges scenario initially imagined

By W. Martin Taylor

The prospect of banks' involvement in the property and casualty industry has spawned many articles in trade publications and a great deal of debate from both agents and companies. Since this issue affects the entire ACORD membership, it needs to be addressed. Relationships, service, and the customer's perspective all will have great effect on the success of banks involved in selling P&C insurance.

Because of their contacts with individuals and businesses, banks often are involved with their customers at the point when insurance decisions are required. This provides banks with the opportunity to be at the right place at the right time for selling P&C insurance.

Executives at both Travelers and Citicorp certainly did not miss this fact when they decided to merge their organizations. They recognized an excellent opportunity to expand revenues by taking advantage of the best both markets have to offer--Citicorp's extensive customer base will provide fertile ground for Travelers' insurance services. In the end, this relationship should provide customers with a good one-stop shopping approach to many of their financial needs.

Though this is a huge move, the merger of Travelers and Citicorp (now known as CitiGroup) probably won't be the dominant force in P&C and banking relationships in the U.S. Instead, the average person most likely will do business with independent agents and regional banks. Why? Because most consumers are already comfortable with both of these business relationships.

Customer benefits and confusion

As the banking and insurance saga continues to play out, proponents and opponents will make us aware of the many positive and negative aspects of banks being involved in the P&C insurance process. This, understandably, will generate some confusion on the part of the consumer. Clearing up this confusion will create extra work for banks.

Several positive aspects of banks selling P&C insurance can be found in the dealings many people have in their personal lives. For example, consumers often finance new vehicles with banks. Because of state motor vehicle requirements, personal auto insurance is mandatory when registering a vehicle. This situation provides banks with an opportunity to service the customer's needs all at one location.

The same type of scenario plays out when a bank customer seeks financing for the purchase of a home. Because homeowners insurance is needed, the bank has an opportunity to provide customers with a one-stop shopping approach to one of the most stressful personal financial transactions many people make--buying a home.

On the negative side, banks will have to realize that selling P&C insurance will definitely require a serious marketing effort. Banks will need to be aware that P&C insurance products are very different in nature from traditional bank products and services that focus on money management and asset accum-ulation.

Independent agent examples and perspectives

For years independent agents fought hard to maintain a barrier between insurance and banks. The U.S. Supreme Court's Barnett Bank decision in 1996, however, changed all of that. Even the independent agent associations no longer oppose the involvement of banks in the insurance process.

Several independent agents I have recently spoken to see a relationship with a bank as a positive one. This is especially true in small towns where the local bank concept still exists. One example of this can be found in a recent relationship established between the Van Den Huevel & Fountain Agency, a full-service independent insurance agency, and the National Bank of Sussex County, both located in Branchville, New Jersey.

When deciding to develop a relationship with a local bank, Van Den Huevel & Fountain looked for a bank with the same culture and attention to detail they had always maintained. Though the agency's success to date is hard to measure because of the briefness of the relationship, they have sold a mix of personal lines, small commercial and life insurance policies as a result of the relationship, according to Raymond Fountain, president of the agency. Fountain sees the relationship as a growing part of the agency's business in the future.

Research shows that the potential success of banks involved in the P&C insurance process is high--their customer knowledge is certainly conducive to cross-selling.

John Willemsen, president of Advantage Risk Management Services, Inc., in Kinnelon, New Jersey, is an MGA providing a host of insurance and risk management programs for school board and municipal accounts. He sees many advantages for both banks and agents.

"Today's insurance market is certainly a dynamic one," Willemsen said. "The consolidations and mergers of large brokerages and those of insurance carriers have made doing business in today's market very competitive. Combine this synergy with the entire banking and insurance issue and I feel the market dynamics will continue to expand."

More to follow

The trend of regional banks becoming more involved in the P&C insurance market will certainly continue to grow. However, a bank's ability to provide insurance services to customers seeking financing for a car or home in a one-stop fashion makes sense only if the service meets or exceeds the levels which consumers presently enjoy with their insurance agent.

If banks are successful within the personal lines and small commercial marketplace, they will certainly look to larger commercial accounts. Banks seeking to work with large accounts, however, will need to remember that agency relationships in this area are more intense. These accounts involve more extensive service and expertise. Agencies must prove their worth daily and exceed customer expectations by the minute.

A joint effort

Agents, insurers, and banks will need to work together to develop products and services that bring value to the insured. Convenience is a positive part of a bank and agent relationship, but if both parties don't provide value to the transaction, then the ultimate benefit to the insured is negligible.

An example of this potential value can be seen in a friend's recent experience. This person, who had an opportunity to start a home-based business, went to his local bank to open accounts and obtain financing. To his surprise, this bank had established a relationship with a local independent agent, who was able to collect the necessary information to obtain a quote on a home-based business program. Before his accounts were opened my friend had been given quotes from two insurance companies.

Research shows that the potential success of banks involved in the P&C insurance process is high--their customer knowledge is certainly conducive to cross-selling. Only one thing is certain, however: any advances on this relationship will mean nothing if consumer confidence is not monitored and addressed by the banks, agents, and insurers looking to establish and maintain bank relationships. Fountain, Willemsen, and many others agree that we are seeing the beginnings of an opportunity-laden relationship.

Jo Ann Litwin, president of Litwin, Castle and Christ, an agency located in Orchard Park, New York, sums up the feelings of many in the insurance industry: "I have no problem with banks entering the insurance game," she said, "as long as we all play by the same rules." *

For information about this topic attend the "Banking and Insurance" workshop at ACORD Technology Conference '99.

The author Martin Taylor is director, government and industry affairs, ACORD.