Last year, for the first time, more than 50% of banks in the United States produced some sort of insurance revenue.According to a "Bank Insurance Fee Income Report" from Michael White Associates, 4,359, or 52%, of all commercial banks or federally insured savings banks in the United States generated revenues through insurance sales.

The lion's share-73.7%-of all insurance fee income accrued to banks with more than $10 billion of assets.

"The big banks have historically been the biggest players," says Michael White, the president of the Radnor, Pa., bank-insurance consulting firm.

Banks' insurance fee income grew 17.3% last year, to $3.49 billion. "It's growing steadily," White says.

"It's an evolutionary process, though banks are (farther) along in annuities than in life insurance," says Arthur M. Fliegelman, a vice president and senior credit officer in the life insurance group at Moody's Investors Service.

Every size category, with the exception of banks with less than $100 million of assets, had more than 50% members reporting some amount of insurance revenue

Of the 2,051 smallest banks, 47.8% had insurance fee income last year, up from 44.8% in 2001.

"They can do better than they have, and they certainly have the ability and opportunity to get into the insurance business," White says. "But the reality is, more of them are involved and they're doing much more in insurance than investments."

Moody's Fliegelman says it is tougher for smaller banks to break into the insurance market.

"I presume that every insurer would die to get into Bank of America," he says. "But in some bank in the middle of nowhere, how hard will the insurer work to get there? I suspect, however, that if they want to sell the product, they'll find someone to sell it to them."

Banks in the Northeast accounted for $881 million, or 25.2%, of overall bank-insurance fee income last year.

Banks in the Northeast also had the highest participation rate in the investment products business, at 37.1%, and the largest amount of investment fee income, $3.9 billion, or a 42.7% share of the total.

Michael White Associates did not track fee income for specific products, but White says that 2002 "was a strong year for fixed annuities, and that is where I'd guess a lot of the insurance fee income came from. But we also saw a hardening of the market in the property/casualty industry, and we saw banks make a number of property and casualty agency acquisitions."

Fliegelman says he does not foresee a big increase in bank-channel sales of insurance products that offer protection-such as like life or homeowners coverage-as opposed to investments products such as annuities.

"They've been more successful with accumulation products," Fliegelman explains. "It's hard to imagine a non-relationship-driven bank, which has so many of its customers (using) an ATM, selling protection products."

This article first appeared in American Banker, a Thomson Media publication. It has been edited for this publication.

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