Everyone knows the well-worn maxim: “Those who fail to learn from history are doomed to repeat it.” And it’s true… to a point. But the lesson isn’t to forever avoid any venture that ever failed. It’s to learn why it failed and not repeat those mistakes.
Banks and credit unions selling insurance is a perfect example. Twenty years ago, there was a rush of financial institutions buying up independent insurance agencies after federal law changed. Many of those deals subsequently unraveled. Why?
“Many banks maintained a flawed insurance strategy,” says consulting firm MarshBerry. “They rushed into the buying frenzy and purchased — not partnered with — a single insurance operation. At the same time, these quick-to-the-punch bank executives offered no commitment, direction, or resources for growing the insurance operation and incorporating it as a core bank product.”
None of those issues are insurmountable, however. A relative handful of banks and credit unions have shown that the two lines of business can not only coexist, but be a significant contributor to non-interest income. They may be onto something. There are signs of renewed interest in selling insurance among other financial institutions.
Insurtech Is Not a Deterrent To Insurance Sales
This renewed interest comes at a time when the business model for the sales and distribution of insurance — especially property and casualty (P&C) coverage for consumers and small businesses — has radically changed from even five years ago. Much like fintech, new players in the insurtech space are streamlining, improving, innovating and disrupting all aspects of the insurance industry. They are bringing the sleepy sector up-to-speed with digital technologies.
Consumers increasingly shop for auto, home and other insurance on their mobile devices using the many comparison sites like Everquote. They may buy through sites such as Lemonade or Metromile. Insurance carriers themselves — Progressive being one example — also offer price comparison tools, recognizing the need to change. All this has been tough on independent agents, the primary distribution platform for 100 years.
Why would banks and credit unions want to enter yet another business in the throes of disruption?
“Insurance is a product 100% of our members need,” explains Jennifer Glenfield, CMO at Michigan First Credit Union. “We can help them save money on it.”
And there’s real revenue potential. Banks and credit unions can capitalize on the trusted relationships they enjoy with consumers thanks to their status as “primary financial institution.”
Michigan First Credit Union is among those banking providers that have been successfully selling insurance. A handful now even boast the same or similar capability to obtain online quotes as the insurtechs. Many also have people available by phone, live chat, text or in person to help consumers and small businesses decide if they’ve got the right coverage before they hit the “order” button.
Despite the slick apps out there, buying insurance is not the same as buying a new gaming headset. That gives banks and credit unions a significant advantage, say retail bankers who spoke with The Financial Brand.
Zach Sibrel, president and CEO of German American Insurance, is quick to point out that insurance is not a one size fits all product, even with simple auto and home policies. That’s what makes digital-only players in the insurance space vulnerable.
“All of the factors don’t get captured in the box on an insurtech site,” Sibrel says. According to Sibrel, 95% of the insurance he sells is handled in person or on the phone. Even the 10% initiated online typically is completed by phone.
Sibrel does, however, believe that as Baby Boomers retire and younger generations come along, that will change.
It’s much the same at Michigan First Credit Union, where members can buy online, but so far, most just look at the options on the institution’s website, then call.
“Most people still like to talk to a service rep,” says Andy Daily, AVP and self-described “insurance champion” at Michigan First. “When you speak with a rep you often can get a better quote than what you see online,” Daily adds.
A Good Way To Build Share of Wallet
Given the checkered history of banking providers in insurance, it still may not seem obvious to many why financial institutions still bother investing time and effort in the business.
Evans Bank, in upstate New York, has a sizeable insurance operation. Robert Miller, Jr., president of the bank’s insurance division, puts forward the reason for Evans Bank’s involvement matter of factly. “Insurance allows us to diversify our revenue stream and reduce our dependence on net interest income.”
He adds that it also helps deepen client relationships. Evans Bank has been in the insurance business since 2000 and, after 16 acquisitions, its agency has 76 employees. Sales of insurance accounted for 61% of the $1.4 billion bank’s total noninterest income in 2017.
Miller also looks favorably on the “digital disrupters” in the insurance industry, which he affectionately calls “change agents.” The startups bring new technology into play, then Miller says its up to the incumbents to analyze the technology and incorporate changes that will make the independent agent model stronger. Evans Agency is doing that with enhancements like customer portals, online quotes, and the use of digital signatures.
Brad Rust, CFO at German American Bank, is another banking executive who also likes the incremental revenues insurance represents.
“We have a big, dominant, market share in our markets,” he says. “Insurance provides another service beyond banking we can provide customers — it gives us more wallet share. That’s why we’ve been selling insurance since 1999.
“All bank customers have insurance needs,” notes Daily, echoing Jennifer Glendale’s point, “and all insurance agency customers have banking needs. It’s a built-in referral system.”
It may be “built-in,” but referrals back and forth between banking and insurance employees too often have been more wishful thinking than reality. The three financial institutions covered in this article have managed to avoid that the trap.
Key to Success Is Integrating Bank and Agency
With more than 50 mostly full-service banking locations, German American Bank doesn’t have an insurance professional in every branch. Instead, the bank commingles insurance and banking staff at regional hub locations, according to Zach Sibrel. The personal lines people sit near the retail banking team members while the commercial and employee benefits insurance staff are situated near the commercial lenders. Brad Rust adds that the personal lines staff go out weekly to visit at least one branch. The idea: Build a relationship with the staff there to help them recognize insurance needs in order to make referrals.
The commercial insurance people meet regularly with commercial lenders and sometimes make cold calls together, adds Sibrel.
Likewise, Evans Bank has commercial insurance agents and commercial bankers in the same office.
“Recently we have started strategically placing agents in some of our retail financial centers,” Miller explains.
Miller adds that the bank’s referral program is “inclusive for both bankers and insurance agents so it’s very much a two-way street.”
Jennifer Glenfield, CMO at Michigan First, says they spent about a month educating employees when the credit union set up its insurance agency operation back in 2016. They wanted to be sure staffers could handle consumer questions once marketing kicked in. That paid off, she says. Having team members in the branches comfortable with asking consumers, “Are you paying too much for insurance?” has been the biggest generator of insurance leads. Email has also been successful in building awareness, she says.
Andy Daily says that after less than two years, Michigan First has already generated $5 million in premiums. There’s no secret to achieving that, he says, it’s a tried and true formula for any new venture. “You need a champion with passion, full CEO support, and team engagement,” he says. “You can talk about those things all day,” he adds, but you also have to actually implement them.
The Agency Outsource Option
Both German American Bank and Evans Bank entered the insurance business by acquiring agencies. And both have acquired numerous small agencies since to build out their footprint and increase premium revenue. That’s been the usual approach taken by financial institutions in the insurance business. Starting up a traditional insurance agency from scratch is a very long road, experts agree.
However, it’s possible for a bank or credit union to start its own insurance agency and then outsource all of the agency functions to a third party. That was the approach taken by Michigan First Credit Union. Andy Daily explains that the $921 million-assets institution had sold life insurance since the mid-1990s, but decided two years ago to launch its own agency with a full portfolio of consumer and small business policies. They did this in partnership with Insuritas, an insurance agency outsourcer that works with about 180 financial institutions.
The arrangement is soup to nuts, including customer contact and claims handling. So when a consumer calls the number on the insurance pages of Michigan First’s website, the person answering works for Insuritas, but they answer using the credit union’s name.
“We looked into buying an agency,” says Daily, “but our philosophy is ‘think quick and move fast’ and the outsource option was faster.” Plus, he adds, they lacked expertise in compliance, licensing, and other areas peculiar to insurance.
It’s not the approach for everyone, however. Sibrel considered the outsource option for German American Insurance but concluded it was not a good fit. “Our model is relationship driven, based on people in place in the community,” he explains. “We like to keep our employees as close to customers as possible.”