Bank on it

Created by agents for agents, InsurBanc delivers services tailored to their needs

By Elisabeth Boone, CPCU

Any independent agency owner who has tried to explain the nature of his or her business to a lender likely has experienced a fair degree of frustration. Lending officers often are unfamiliar with the cash management patterns in independent agencies; and when it comes to financing acquisitions and perpetuation, bankers have difficulty understanding the measures used to establish agency value. For many agency owners, finding a lender that can grasp and accommodate their needs has seemed like the impossible dream.

Proving that dreams can come true, 10 years ago the Independent Insurance Agents and Brokers of American (IIABA) and W. R. Berkley Corporation opened InsurBanc, a full-service federally chartered bank that offers a full menu of business and personal financial products and services that are designed specifically to meet the needs of both retail and wholesale agencies.

On the business side, InsurBanc provides funding for acquisitions and perpetuation, working capital, producer development, equipment leasing, debt refinancing, and owner-occupied real estate investments. Also available are checking and money market accounts, business savings accounts and certificates of deposit, premium trust accounts, and health savings accounts.

Personal banking products include checking, money market, and savings accounts; CDs; retirement accounts; residential mortgages, home equity loans and lines of credit, as well as other lines of credit; and credit cards. Online banking is available for both business and personal accounts.

With hundreds of customers nationwide, InsurBanc is a thriving institution that is drawing high praise from agency owners as it refines and expands its offerings to address emerging needs. Based in Farmington, Connecticut, InsurBanc is run by a team of experienced banking professionals.

A profile of InsurBanc appeared in the October 2006 issue of Rough Notes. A lot has changed since then, for agencies as well as financial institutions. We asked the top executives at InsurBanc to update us on key developments at the bank and to explain how InsurBanc is responding to the needs of agents in today's economic climate.

Listen and learn

"Throughout our history, we have continued to stick to our principles of delivering quality financial services to independent agents," says David Tralka, president and chief executive officer of InsurBanc. "We do that by communicating with our clients and listening to what they tell us, and responding with customized solutions. We aim to be nimble in creating and delivering those solutions.

"Over the last couple of years, we've continued to build improved cash management systems using a sophisticated technology platform," Tralka says. "We've also introduced Agents' Express Leasing to help agents finance computer hardware and software as well as other office equipment and furniture. In addition, we've rolled out a much more economical and user-friendly business credit card. At the same time, we continue to fulfill our core purpose, which is to provide capital for acquisition and perpetuation," Tralka says.

The 2008 collapse of Wall Street and the ensuing severe recession dealt a harsh blow to many financial institutions, and some did not survive. InsurBanc not only weathered the storm, Tralka says; it actually thrived.

"We have prospered through the financial crisis, and we continue to do so," he says. "We're a very well capitalized institution, and we have great customers and a great industry. By sticking to what we know and being mindful of the pitfalls around us, we were able to navigate InsurBanc through the worst of the crisis.

"The competitive landscape for banking changed dramatically during that period," Tralka remarks. "Many banks either went out of business or were acquired, or they stayed in business but significantly curtailed their lending programs.

"The impact on agencies was twofold," he explains. "First, they had a tougher time obtaining credit; at InsurBanc, we never stopped lending, and in fact we grew our lending business. Second, agency owners began to look closely at where they were keeping their deposits and running their cash. As a result, there was a flight to quality, with agents looking for more stable institutions. InsurBanc was a beneficiary of that trend, so in hindsight, the financial meltdown was actually a good thing for well-capitalized institutions like ours."

What's more, Tralka comments, "We are a national platform, so today we are doing business with agencies in the South, the Southwest, and the far West, whereas five years ago we might have been seen as primarily a Northeastern institution. Developing relationships with agents beyond the East Coast has been a significant factor in our growth."

An agency culture

As noted earlier, InsurBanc is a joint creation of the Big "I" and W.R. Berkley and was formed to address the specific financial needs of independent agencies and MGAs. To fulfill that mission, says Robert Pettinicchi, executive vice president and chief lending officer, "InsurBanc operates its business in a manner and with a culture remarkably similar to that of its agency customers."

First, he says, "As an agency does with its insureds, we try to understand our clients' needs and tailor solutions to fit those needs. We don't take a 'one size fits all' approach to providing financial services. We work with our clients to help them solve their problems and achieve their goals, whether it's to expand their business, acquire another agency, bring in and finance new producers, or manage their cash flows," Pettinicchi says.

"Agents feel comfortable with us because we speak their language," he continues. "We understand how they generate revenue, how they establish value for their agency, and how their financial needs differ from those of other businesses."

The cash management patterns in an agency, which are unlike those in businesses that sell tangible products, are a prime example of such a difference.

"The majority of our clients have a commercial insurance operation in their agency, and they do the billing and collection for that business," says Mary Grazen, InsurBanc's executive vice president and chief operations officer. "They accumulate a lot of cash that they can use for investment. We talk with the principals about their operational cash flows, financial goals, and risk tolerance, and we also discuss any relevant regulatory requirements in their particular state," she explains.

"As Bob has said, we look at each agency individually to understand what it does and how it operates," Grazen continues. "We assign an analyst to each client so we can learn the specifics of its operation, and, based on our findings, we recommend the appropriate products and services. Those typically include an operating account, a trust account, and an investment account."

What's more, Grazen notes, "We have a state-of-the-art online banking capability, which allows the agency to move money electronically in a variety of ways. For example, the agency can move money in batch for commission disbursements to its producers. We customize online banking options so the agency can increase revenue and reduce costs where possible, and in general improve efficiencies within its office.

"Our agency clients see InsurBanc as a welcome change from their former bank relationship because we focus on helping them improve their profitability," Grazen asserts. "We treat our clients the same way they treat theirs: listening and then providing high-quality, personalized service."

M&A support

For many agency owners, trying to explain to a traditional lending officer the measures used to establish the value of an agency for purposes of merger or acquisition is an exercise in frustration.

Because its people understand the unique principles of agency valuation and the concerns of agency owners who seek to sell or merge their own business or acquire another agency, InsurBanc can take frustration out of the equation, Pettinicchi says.

"We provide financing for mergers, acquisitions, and perpetuation, and our goal is to create a sustainable, workable transaction on reasonable terms and make it work for all parties," he says.

"There are no hard and fast rules about agency valuation, and no multiples that are valid in every situation," he explains. "We sometimes see a disconnect between agency owners and potential buyers about what agencies are worth, with an owner hanging on to what the agency may have been worth a couple of years ago. It's the same thing that's being experienced by home owners who bought when the market was at its peak and can't accept the fact that the house they paid top dollar for is now worth a lot less," Pettinicchi observes. "Agency owners in this situation may decide not to sell now because they think the value will go back up when the market hardens."

That said, he notes, "We are involved in transactions where owners are reasonable and have realistic expectations. We focus on matching the desires of both parties to come up with a good deal."

No one knows when agency values will start to recover or to what extent, Pettinicchi comments, "but we do believe there's a significant amount of pent-up demand. We've certainly seen fewer deals over the last year, but we expect activity to increase as older principals begin to plan for retirement and seek perpetuation solutions."

Pointing to another trend on the merger and acquisition front, Pettinicchi says, "We see that the large, publicly traded brokers are buying agencies of smaller size more often than they typically have. They pay a good price for the agencies they acquire, and the acquisitions immediately create value for them. The downside of this trend is that someone internally doesn't get to buy the agency because it was sold to a big broker.

"On the bright side, the people who weren't able to buy the agency they worked for are starting their own agencies, and the agency business is an amazingly resilient and dynamic field," Pettinicchi declares.

Now at the 10-year mark, InsurBanc is the financial institution of choice for a growing number of independent agency owners across the country. For agents who want a banking partner who understands their business and listens to their concerns, InsurBanc may be the solution.

To Robert Pettinicchi, the reason for InsurBanc's success is simple:

"Banking is not a commodity, any more than insurance is a commodity. So our approach is in tune with the mindset of independent agency decision makers."n

For more information:

InsurBanc

Web site: www.insurbanc.com