Agency acquisition is the preferred strategy
for banks participating in the P-C market
By Phil Zinkewicz
Larger banks are the most aggressive acquirers, although community banks have become increasingly active in the agency acquisition market.
--2002 study conducted by American Bankers Insurance Association and Reagan Consulting
"The agency (Stewart Sneed Hewes) had $13 million in revenue when we acquired it in 1999 and today it has grown to $20 million."
--James Threadgill, Vice Chairman, BancorpSouth
In March 1996, when the Supreme Court came down with its now-famous decision in Barnett Bank of Marion County v. Nelson, ushering in a new era in banks' involvement in insurance, it sent shock waves throughout the independent agency system. Agency leaders feared that banks would have an unfair competitive edge over insurance agencies, or that they would gobble up insurance agencies and spit them out with a callousness that would defy description.
But neither of those things has happened to any significant extent. Rather, in many instances, banks and insurance agencies have discovered that they have a symbiotic relationship and, over the more than six years since Barnett, banks and agencies have struck strong partnerships. Not all of the deals have been successful, and some have been abysmal failures. But, by and large, most observers of the scene believe that bank agency partnerships will continue at an increasing pace.
To get a broad picture of what has happened to banks in insurance since 1996, consider the findings of a 2002 study on leading banks in insurance conducted jointly by the American Bankers Insurance Association (ABIA) and Reagan Consulting, Inc.
According to the study, total insurance and annuity premiums produced by banks in 2001 are estimated at $55 billion, an increase of 28% over estimated 2000 written premiums and the strongest growth rate in the five-year history of the study. Moreover, the strongest premium growth occurred in commercial lines (commercial property/casualty and group benefits), where estimated premiums grew 65% from $5.4 billion in 2000 to $8.9 billion in 2001.
The ABIA study also shows that acquired agencies remain the most commonly reported distribution platform for commercial property and casualty (57%), group benefits (48%) and personal property and casualty (55%) products.
The insurance distribution strategies and results of 32 leading banks were analyzed by the ABIA in this study. Findings from this analysis include:
* As with the general population of reporting banks, acquired agencies are the predominant distribution platform for all general insurance product lines except individual life and health.
* Small to middle market business customers and affluent individuals are primary targets for insurance sales by these leading banks.
* Traditional (i.e., face-to-face) distribution channels are generally more effective than direct response channels. And, the Internet is identified as the least effective channel for each product line.
The study notes that distribution platforms have been the source of much debate in bank-insurance. "Should we buy, build or align" remains a preeminent question, according to the ABIA study. Here are some more of the study's findings:
* All three platforms are alive and well within the industry and often within an individual bank. It is not uncommon for banks to vary their distribution strategy from one product line to another or even from one target group to another within a single product line.
* An acquired insurance agency is the primary distribution platform for a majority of banks that distribute property and casualty or group benefits products. Larger banks are the most aggressive acquirers, although community banks have become increasingly active in the agency acquisition market.
* Alliances (including carrier direct, third-party marketer (TPM) and joint venture strategies) are widely used and account for 35% to 40% of the distribution platforms in each of the four product lines analyzed. Banks below $1 billion in assets are the most inclined to deploy an alliance strategy.
* De novo strategies remain rare with the notable exception of individual life/health products, for which a de novo agency is the most common primary distribution platform.
Therefore, in the property/casualty end of the business, it would appear that banks are drawing on the expertise of existing independent agencies that have already established a rapport with a solid customer base. That is the strategy being employed by BancorpSouth, headquartered in Tupelo, Mississippi, which operates approximately 250 commercial banking, insurance, trust, broker/dealer and consumer finance locations in Alabama, Arkansas, Louisiana, Mississippi, Tennessee and Texas with a staff of approximately 3,800 full-time employees. BancorpSouth and its subsidiaries provide, in addition to traditional banking services, mortgage origination and servicing, leasing, credit cards, consumer finance services, trust and fiduciary services, brokerage and investment services and insurance services.
It was just four years ago, in 1999, that BancorpSouth acquired Stewart Sneed Hewes, Inc., an insurance agency based in Gulfport, Mississippi, which ranks among the 100 largest insurance agencies in the nation. In 2000, BancorpSouth acquired Pittman Insurance Agency and the Kilgore, Seay and Turner Agency, each of which was a large independent agency based in Jackson, Mississippi. In May 2003, BancorpSouth acquired Wright and Percy, Louisiana's oldest and largest independent insurance agency. Most recently, BancorpSouth executed a definitive merger agreement with Ramsey, Krug, Farrell and Lensing, Inc. (RKF&L), one of Arkansas' leading insurance firms.
As with its other acquisitions, BancorpSouth intends to leave the existing cast of characters in charge of the insurance operations at RKF&L. Tad Krug will remain as CEO of RKF&L. "Our interest was in continuing our current business plan and maintaining our present staff and corporate culture," says Krug. "BancorpSouth is a strong financial partner that gives us the ability to expand in our specialties on a regional basis and accomplish our growth goals. And, we liked the BancorpSouth strategy, making an investment in a professional organization that can produce non-interest revenues, leaving the insurance agency leaders free to do what they do best--establish and maintain strong relationships with our insurance customers, while growing and producing new business."
That has apparently been the strategy of BancorpSouth since its first insurance agency acquisition of Stewart Sneed Hewes. "We were a financially strong agency even before the acquisition," says John Sneed, president of the agency. "But we weren't blind to the trend towards banks acquiring insurance agencies, so we explored how that move might be beneficial for us. With BancorpSouth, we knew that they had quality people, so there would be quality people on both sides of the equation. In addition, BancorpSouth has given us a capital base with which to expand. Moreover, they have allowed us to operate under our own identity and according to our own strategies."
James Threadgill, vice chairman of BancorpSouth, says that this is the approach the bank has taken with all of its acquisitions. "I know that years ago there was a perceived animosity between banks and insurance agencies," says Threadgill. "Maybe banks thought they could do the agent's job equally well, but that perception has changed. Banks have come to realize that agencies have just as good relationships with their insurance customers as bankers have with their banking customers. Especially during hard markets such as the present one, insurance customers look to their agents to find the markets they need and get the best deals possible. That relationship is extremely important, and we don't want to jeopardize that. Our four-year relationship with Stewart Sneed Hewes demonstrates that we value the expertise of the agency and the reputation the agency has already established. The agency had $13 million in revenue when we acquired it in 1999 and today it has grown to $20 million. That says something right there."
Threadgill says that BancorpSouth has no intention of turning insurance agents into bankers any more than it wants to turn bankers into insurance agents. "We are looking for the professional insurance agencies that are already successful. We don't want to acquire agencies that need help."
As for cross-selling, Threadgill allows that this is a potential benefit of insurance agency acquisitions but quickly adds that this is something that will occur slowly. "Most of our banking customers already deal with agencies in their property and casualty purchases, and they have established strong relationships with them. That's natural and understandable. But it doesn't hurt for those banking customers to know that, if their own agency closes down or stumbles in some way, that we have the expertise to step in if need be."
Will there be more acquisitions by banks of insurance agencies? "We're certainly exploring opportunities," says Threadgill. "It's a trend that I don't think can be stopped." *