While the notion of combined banking and insurance operations is not new, it's only in recent years that the concept has reached critical mass in the United States.

New findings released by Radnor, Pa,-based Michael White Associates (MWA) and Washington-based American Bankers Insurance Association (ABIA) bear this out. The numbers indicate the nation’s bank holding companies (BHCs) increased their total insurance revenue from $43.5 billion in 2006 to $43.7 billion in 2007.  New York-based Citigroup Inc., San Francisco’s Wells Fargo & Co. and Winston-Salem, N.C.-based BB&T Corp., were among the leaders in insurance fee income in 2007. The findings are based on data reported to the Federal Reserve Board by top-tier bank holding companies. The analysis measures the banking industry’s insurance business, and provides some benchmarks that gauge bank insurance performance.

“Among the top 50 in insurance revenue, the mean ratio of insurance revenue to non-interest income was 13.4% in 2007,” says Michael White president of MWA. “For those BHCs engaged in them, insurance activities continue to make meaningful contributions to banking net operating revenues.”

American banks and insurance companies had historically kept their distance since the passage of the second Glass-Steagall act of 1935, which segregated financial services companies according to their type of business. However, by the 1990s, the idea of conglomerated financial services companies that could offer both banking and insurance offerings began to gather steam. In 1999, Congress passed the Gramm-Leach-Bliley Act (GBLA), which abolished many of the prohibitions contained in Glass-Steagall, and the move by banks into the insurance market reached full gallop. Envisioning back office synergies and the ability to entice customers with the lure of “one-stop” shopping, banks—most notably BB&T—began to acquire regional insurance agencies at a furious clip.

Although consumers can now readily purchase insurance at many banks—or, conversely, bank with an increasing numbers of insurers offering banking services, such as New York-based Metlife—the promised back office synergies of a combined financial services company can be elusive. The dissolution of the mega-merger between Citibank and Travelers is an example of a deal where hoped for synergies failed to materialize. Yet, even smaller banks that have succeeded in assimilating insurance operations into their own acknowledge that the transition is far from easy. Data migration issues and mismatched infrastructure can bedevil efforts at back office synergy.

"It's extremely easy to purchase something compared to how easy it is to integrate it into your own system after the purchase," a bank executive tasked with integrating a newly acquired insurance agency told Insurance Networking News last fall.

While consumers benefit from this proliferation of distribution channels, so do vendors of insurance technology, many of whom tailor products to the bank insurance marketplace. One such vendor is Dublin, Ireland-based FINEOS Corp., which provides enterprise software solutions for insurance, bancassurance and government entities. The company recently signed a deal with Australia-based BT Insurance, a subsidiary of Westpac Banking Corp., to provide a claims system to manage BT’s property/casualty lines. FINEOS says its claims system will be used to streamline claims management operations at BT Insurance by automating processes, improving quality of customer service and enforcing best-practice rules.

Sources: Michael White Associates, American Bankers Insurance Association, FINEOS, INN archives

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