It wasn't so very long ago, a decade or so perhaps, that the insurance industry was trying to keep banks out of the insurance business. The argument was that, because of their lending services, banks might be able to unfairly "influence" their banking customers to buy insurance products from them rather than from insurers and/or their independent agents.
Well, times certainly have changed, in part because of last year's passage of the financial services deregulation law and in part because of overall market trends toward full financial services. Today, not only are banks involved in insurance, but insurance companies and agents are involved in the sale of banking products.
Last November, the Independent Insurance Agents of America (IIAA) announced that it had entered into a partnership with W.R. Berkley Corp. to form InsurBanc, a full-service federal savings bank that the IIAA said will "enable consumers to access financial products through their local independent insurance agent." InsurBanc received conditional approval from the Office of Thrift Supervision (OTS) in November and it is slated to open for business in April of 2001.
"We look upon this venture as just another arrow in the quiver of the independent agent," said Michael Herlihy, president and CEO of InsurBanc.
The new federal savings bank will provide an array of banking products such as auto loans, credit cards, home equity loans, mortgages, certificates of deposit and money market funds, among others, says Herlihy. For business clients, the bank will offer lines of credit, commercial real estate loans and cash management services.
IIAA President William F. Hofmann III called the OTS's approval of InsurBanc "a landmark day for consumers and business owners as well as independent insurance agents. Hofmann, who is a partner in Provider Insurance Group of Belmont, Massachusetts, said: "InsurBanc will position IIAA member agents to expand their portfolio of valuable services they market to consumers."
Paul Equale, IIAA CEO, said that InsurBanc will "empower all consumers with new financial options and allow independent agents, who are trusted financial advisors, to complement the services they offer their clients."
--William F. Hofmann President, IIAA
It has been Herlihy's responsibility to oversee the development of InsurBanc and deal with compliance issues to satisfy the criteria of the OTS. "We will be concentrating on completing the tasks laid out by the Office of Thrift Supervision with a goal of opening for business this year," he says. "We will aggressively move forward to achieve full regulatory approval as soon as possible."
Commenting on the joint venture, William R. Berkley, chairman and CEO of W.R. Berkley Corp., said: "The ability of independent agents to be a resource for additional financial services to their customers will be a benefit to both." W.R. Berkley, along with two of its subsidiaries, will be a joint owner of the thrift holding company. "We believe that InsurBanc and independent agents are going to be the best choice for consumers seeking access to financial services products from someone who is truly interested in their needs."
However, before its launch, InsurBanc must meet several conditions specified by the OTS, including submitting to the OTS an updated business plan reflecting all material changes from the last version submitted, maintaining a core capital ratio of at least 10%, and submitting an agent education program, as well as obtaining insurance coverage from the Federal Deposit Insurance Corp. (FDIC).
Satisfying the conditions of the OTS can be a lengthy process. Just ask Stan Ommen, president and CEO of State Farm Bank, a federal savings bank started up by the Bloomington, Illinois-based State Farm Mutual Automobile Insurance Co. in March of 1999. "It was about 16 months from the time the application was submitted until the time we received OTS approval," he says. "State Farm decided to enter into the banking arena really because of customer requests.
"State Farm agents were being asked by their clients if banking products were available from the company. State Farm then conducted its own customer surveys on the possibility of selling banking products and found that the responses were positive. The bank formally received its charter from the OTS in November of 1998 and from that point we concentrated on consumer-oriented financial products, complementing State Farm's insurance focus on personal lines."
State Farm Bank is a nontraditional financial institution and doesn't have branch offices, says Ommen. "The bulk of communication between the bank and its customers is through our agents, augmented by telephone mail and electronic communications," he says.
In the little more than a year that State Farm Bank has been operational it has expanded from Central Illinois and St. Louis to the rest of Illinois and Missouri and today is operational in 11 states--Illinois, Missouri, Arizona, Nevada, New Mexico, Colorado, Wyoming, Utah, Indiana, Alabama and Mississippi. "Our long-range plan is to have our agents trained countrywide," says Ommen. "Our training process consists of six to eight hours of self-study, a compact disc which teaches them how to operate their substations, and then two days of classroom study."
The products State Farm Bank offers include checking services, savings, money markets, CDs, home mortgage loans, car loans and leases, home equity loans and home equity lines of credit. Just last Spring, State Farm became Internet accessible. "Anyone in the United States can use the Internet to open a State Farm Bank deposit account," says Ommen. "Consumers can also so go online to view detailed information related to their accounts, transfer funds from one account to another and pay bills electronically. State Farm Bank is also accessible countrywide via its 24-hour, seven-days-a-week toll free number ((877)-SF4-BANK or (877) 734-2265) at which home mortgages are available in addition to the bank's deposit products."
Also in the banking business these days is the National Association of Mutual Insurance Companies (NAMIC) which owns and operates Assurance Partners Bank. Last February, NAMIC received approval from the OTS and then, in June, received approval from the FDIC. "Initially, for the year 2000, our marketing was limited to Indiana, but we are developing plans to operate with our investor companies in other states," says David T. Fronek, CEO and president of the new venture.
"Assurance Partners Bank is strongly capitalized with approximately $12,500,000 in private funding from over 262 member companies from 25 states and Canada," says Fronek. "The bank is a cooperative effort in the best tradition of the mutual insurance industry. Thousands of policyholders will have the opportunity to become customers of Assurance Partners Bank by responding to marketing materials supplied through policy statement inserts and other insurance company communication, including referrals from independent agents. Significantly, many of these prospective customers live in small towns and rural areas that have been under-served by the larger banking institutions. Our goal is to provide NAMIC member insurance company employees, agents and policyholders with convenient access to a full range of financial service products and services at competitive rates," Fronek says.
Products offered by Assurance Partners Bank include first mortgage loans, home equity loans and lines, credit cards, student loans, auto loans and personal unsecured loans. Certificates of deposit in varying terms and savings accounts are the first deposit products offered by the bank, says Fronek. In July of last year, Assurance Partners Bank launched its second-generation Web site, offering users more Internet-based functionality and access to product information and forms in a World Wide Web environment, says the bank CEO.
"People visiting our site are able to access information and the latest rates on a variety of bank products, as well as download forms to apply for our products," says Fronek. "We strive to provide competitive financial service products delivered in a professional, confidential and customer-focused manner."
Has the financial services deregulation law passed in December of 1999 brought about all this insurance activity in the banking industry? Fronek says that the law is not specifically responsible for insurance company and agent involvement in banking. "Remember, NAMIC started testing the waters in terms of banking activity back in 1997," he says. "Looking back, it was probably both an offensive and defensive strategy. Even before the law was passed, it was easy to see that convergence of financial services industries was at hand. After all, banks are buying agencies as well. Assurance Partners Bank is a way to better retain agency customers."
Now that everyone is playing in everyone else's ballpark, will there be a regulatory concern about banks pressuring their customers to buy their insurance products and vice versa? Herlihy, Ommen and Fronek don't believe so. "There are anti tie-in laws and privacy laws regarding the sharing of information that we all have to obey," says Fronek.
All agree that insurers' move into banking is just a financial services trend whose time has come. And they also agree that there will be many more ventures of these kinds. You can bank on it! *