ABA Banking Journal - September 2009 - (Page 36)
SPECIAL REPORT: BANKS IN INSURANCE the future of bank-insurance, perhaps most notably in the following two areas: 1. Community banks will lead Change in the banking industry often starts at the top and trickles down. Larger banks were the first out of the gates in pursuing the insurance business, but many have now admitted that, for them, pursuing relevant scale in insurance is futile. BB&T and Wells Fargo have proved it can be done, but they are the exceptions. In fact, only five of the 50 largest U.S. BHCs are on the top 100 list for NII concentration (i.e., percent of NII derived from insurance brokerage fee income). For community banks, however, relevant scale in insurance is generally more attainable. Consider the example of First State Bank in Webster City, Iowa. Having previously acquired more than a dozen small insurance agencies, this $242 million-asset bank generated approxi- mately $4.5 million in insurance brokerage fee income last years, which accounted for 37% of First State’s net operating revenue and 76% of its noninterest income, according to Michael White Associates. That’s a very high percentage, but more than 100 banks with assets under $5 billion currently earn 10% or more of their noninterest income through insurance sales. 2. Agency acquisitions drive growth As demonstrated by the top 100 BHCs in NII concentration, most of which have acquired at least one insurance agency, the surest path to relevant scale in insurance is through acquisitions. Although cross-selling is an important part of the insurance strategy for most banks, it is more practically a means for strengthening existing bank customer relationships than for building scale. In addition, individual life and health insurance will be an important element of most bank-insur- ance strategies but will not do the heavy lifting of building scale. Why? Because individual life and health commission income is generally non-recurring. Conversely, property and casualty (and group benefits) insurance commissions provide a renewable source of noninterest income, with retention rates often in excess of 90%. Look for community banks to increasingly pursue acquisitions of property and casualty insurance agencies to build scale. Many banks have seen some erosion in their noninterest income over the past two years. Community banks are no exception and can ill-afford to lose ground on this front as they generally have fewer sources of noninterest income than do larger banks. It is the community banks, therefore, that have both the greatest need for the additional noninterest income that insurance distribution can provide and the greatest opportunity to achieve relevant scale. BJ ABIA—low-profile resource for banks in insurance ith everything else going on in financial services, it’s not too surprising that ABA’s insurance affiliate, the American Banker’s Insurance Association, remains something of a hidden asset. Yet the pressure on earnings imposed by the current recession, special deposit insurance assessments, and competitive pressures make alternative sources of noninterest income particularly attractive to banks. ABIA is in part a specialized lobbying organization, representing banks that have insurance sales operations, as well as the various companies that partner with them, but to a large extent it is a professional development organization with the same specialized focus. ABIA’s membership is about 55% banking institutions of all assets sizes and 45% other providers, including insurance carriers, brokers, consultants, marketing companies, and technology vendors. In essence, ABIA is a “mini ABA.” Formed in April 2001 from the combination of the Association of Banks in Insurance and the ABA Insurance Association, the ABIA provides marketing support for bank affiliated insurance agencies, as well as benchmarking data W to help improve members’ effectiveness. Several of the services offered are free as part of the ABIA membership dues; others are offered at a substantial discount to members. Services include: s Best Practices Panels. Nine panels exist covering such topics as annuities, agency integration, community banking, compliance, and credit insurance/debt cancellation. The panels meet regularly by teleconference and are open to ABIA members only. There is no charge. s Free one-hour insurance licensing consultation. The association has partnered with Insurance Licensing Services of America to consult for an hour ($500 value) to help banks assess their current insurance licensing compliance status. s Free one-hour merger and acquisition consultation. Three bank-insurance consultant partners will meet with any bank contemplating entering the insurance business or expanding its presence ($1,500 value). This member-only benefit is provided by MarshBerry & Co., Reagan Consulting, and Hales and Company. s Research/reports/publications. ABIA provides members with industry statistics, trend reports, and benchmarking surveys through various reports. Among these are: Study of Leading Banks in Insurance—an annual look at broad trends of bank insurance participation and product strategies, distribution platforms, and more. Handbook of Bank Insurance Compliance—updated each year, this members-only publication addresses compliance issues specific to bank-owned agencies. Michael White–ABIA Bank Annuity Fee Income Report—a quarterly report compiled by Michael White Associates based on data from more than 7,000 banks and more than 900 large bank holding companies. s Conferences. ABIA holds an annual conference early each fall. This year’s conference will be in Washington, D.C., Oct. 4-6, and includes new community bank track. In addition, the association hosts one-day workshops and telephone briefings. Recent topics included “Debt Cancellation” and “Agency Integration.” For more information on these services and others, to see the annual convention program, or to join ABIA, go to the ABIA website, www.theabia.com, or contact Valerie Barton, executive director, 202663-5072. 36 SEPTEMBER 2009/ABA BANKING JOURNAL www.ababj.com/subscribe.html
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