Nearly 40 years ago-long before Gramm-Leach-Bliley (GLB) was ratified-Charlotte, N.C.-based First Union Corp. was diligently establishing a modest insurance program designed to complement its core banking competencies.

Among a small group of U.S. banking institutions that possessed "grandfathered" powers to sell and distribute insurance products, First Union developed the business around mortgage and credit insurance, with some life coverage mixed in. As its insurance business prospered, First Union continued to regard it as a profit center. The bank's competitors, on the other hand, viewed the business in a different light.

Recognizing the complexity of selling insurance products coupled with intricate state regulations that governed them, most banks considered insurance to be a drag on banking operations, not a competitive advantage.

But today, these same competitors might harbor a different opinion. In cultivating four decades of bank and insurance cross-selling experience, First Union Corp. is positioned to deliver what many consumers consider a major priority: one-stop shopping convenience. Moreover, First Union is providing it through multichannel options that feature the Internet, call centers and face-to-face meeting with licensed agents.

"The philosophy at First Union has long been to provide customers with the ability to buy any product that falls under the banner of financial services," David deGorter, president of First Union Insurance Group, explains. "It's a holistic approach to meet the customer at what we call 'the point of need.'"

This one-stop shopping phenomenon becomes even more dramatic when one considers the synergy First Union has established with its parent's bank customers. First Union Corp. has 16 million depositors, of which 2.5 million participate in online banking.

If they wish, these customers can obtain direct access to insurance products through licensed agents located in the bank branch, or they can log on to and, navigating to a financial services link, obtain insurance that suits their needs.

Integration issues

While many banks and insurance carriers have reached the exploratory phase of financial services marketing, First Union Insurance is geared to take another next step forward. Realizing the limitations of its internal resources, the provider has taken advantage of the latitude written within GLB to acquire large independent insurance agencies. This will help drive insurance distribution First Union can't manage itself. First Union Insurance's formula for successfully combining bank and insurance competencies under one corporate roof has been an elusive task for both banks and carriers exploring such strategies.

Among the challenges facing providers are significant back-end data integration, front-end Web delivery, steep new-product learning curves, regulatory red tape and lack of corporate vision.

"One major challenge for insurance companies is not the technology but the process and the organization," Gordon Sanders, vice president of global insurance for Atlanta-based e-business service provider S1, notes. "They have been accustomed to having multiple operations, multiple IT and multiple distribution outlets for each business line. Now factor in new bank data and it compounds the situation."

Enterprisewide View

To solve this fragmented data problem, carriers must integrate disparate data to provide an enterprisewide view of a bank/insurance customer, explains Kimberly Harris, a senior analyst with Durham, N.C.-based Gartner Financial Services Inc. Within a data warehouse, a provider can create data marts that furnish "snapshots" of customer data.

However, several data warehousing efforts in the insurance industry have been either scaled back or tabled in recent years due to lack of internal resources or vision.

Banks, on the other hand, have discovered that insurance is fraught with complexities. "Banks don't understand insurance and don't want to understand insurance," says David Potterton, research director of e-financial services for Newton, Mass.-based Meridien Research Inc. "So they target insurance agencies that are equipped to handle everything from the underwriting to the distribution."

When banks do enter the insurance market on their own, most opt to "cherry-pick insurance products that are most bank-like, such as annuities," says Richard Roby, director of the insurance practice for Needham, Mass.-based financial services consulting firm TowerGroup.

Opening new doors

Financial services providers must reconcile these deficiencies to improve the so-called "value proposition" for consumers. "We found that a customer attrition rate is reduced as you add more products and services to a portfolio," deGorter says. "If you add electronic bill payment, it goes down. Add a variable annuity, it's reduced further."

With both the challenges and stakes high, most banks and carriers have approached financial services marketing from safe entry points. The formation of strategic alliances has become a prevalent method. Participants can quickly retrench if growth prospects appear bleak.

"In the short run, the alliance model will be the most productive route to take, particularly for carriers," says Karen O'Brien, an analyst covering e-Insurance initiatives for Framingham, Mass.-based e-business consulting firm IDC.

In March, Bank of America Corp. and Los Angeles-based Farmers Insurance Group announced an integrated banking and insurance initiative targeted for several markets starting in July.

To set the stage for the launch, the Charlotte, N.C.-based bank formed Bank of America Insurance Services and named Cathy Kenworthy, a former executive for GE Capital Mortgage Corp., to oversee the program.

All told, the program's potential reach is impressive: B of A's distribution network includes 4,400 retail banking centers and 13,000 ATM machines; Farmers comes armed with a network of 17,000 exclusive and independent agents.

As part of the first phase, Farmers will place several of its most productive agents in 20 Bank of America branches to sell property/casualty insurance products to Bank of America customers.

In addition, agents will sell bank products to their own insurance customers-securing a commission by referring them to local Bank of America branch offices. B of A's role will be to quote Farmers' homeowners insurance to existing and prospective mortgage customers.

But other details are sketchy. Aside from information obtained from corporate news releases, Farmers and Bank of America executives declined to be interviewed for this article.

Pivot foot forward

Banks with an eye on insurance have another viable option to consider-mergers and acquisitions of agencies to drive distribution.

"I predict that over the next few years the seven largest managing general insurance agencies will be in the hands of banks," TowerGroup's Roby says.

"Acquiring an agency enables banks to avoid underwriting," he says. "That said, in the long run, banks will increase their position in insurance by entering the risk-bearing phase-this might mean M&A activity with a reinsurer."

For now, banks are content to scout for agency partners to serve as the gateway to increased insurance volume. Financial services provider Well Fargo & Co. spent $400 million in March to acquire Chicago-based ACO, the parent company of Acordia Inc., an agency specializing in business insurance.

Similar to Wells Fargo, First Union Insurance Group (FUIG) is banking on agencies to take its operation to a higher level. FUIG is an operating unit of First Union Capital Management Group, a wealth management outfit spun off from parent First Union Corp. First Union Capital Management has various units-two of which include insurance and brokerage-under its aegis.

While FUIG has roots tracing to the 1960s, it wasn't until 1993 that "the vision within the group changed to perceive insurance more as a wealth management product," deGorter says. deGorter, who had been an executive with such bank and insurance providers as Avco Financial and 21st Century Insurance, took over the unit in 1993. He promptly bolstered the portfolio by adding a line of annuity products. Selling $30 million in annuities the first year, FUIG now sells about $1 billion a year.

Acquiring its first agency-Taylor & Clark-in 1996, FUIG currently has four agencies under it wing. The most recent buyout occurred last August when it paid $4.3 million for Columbus, Ohio-based Professional Direct Agency Inc. The main attraction to First Union was the company's nationally licensed online insurance agency,, which markets annuities, life, auto and health insurance.

Totaling 4,000 licensed agents, Pivot can offer First Union mass product exposure since it pushes its distribution through carriers, banks, large agencies and affinity groups. In fact, all of First Union's agency partners enable the company to wield significant flexibility. First Union has a team of 550 licensed agents between its bank branches and call centers. With a direct link to the agency management systems, First Union can parcel out quote requests to the appropriate partner and have them returned swiftly.

Charter member

As banks home in on carriers' territory by acquiring agencies, carriers are taking their own pre-emptive strikes by forming banks.

Philadelphia-based Cigna Retirement & Investment Services recently received Office of Thrift Supervision (OTS) approval for a federally chartered, full-service thrift based in Hartford, Conn. Cigna will market wealth management insurance products to its retirement account customers.

But make no mistake, many carriers, such as Cigna, are not pursuing bank charters because they relish bank marketing.

"We really didn't do this to get into the banking business. It's all part of the value proposition that we feel obligated to provide customers," says Ken Ferraro, Cigna's public affairs manager.

State Farm took a similar approach, launching State Farm Bank in 1998 to position itself to "be where our customers expect us to be," Robert Reiner, manager of enterprise Internet services for Bloomington, Ill.-based State Farm Insurance Co., says. The bank currently has 40,000 accounts with $450 million in deposits and total assets of $650 million.

State Farm's strategy is simple: target existing insurance customers to acquire mortgage loans, annuities, CDs and money-market accounts, Reiner says. While customers can use a call center or Internet to do this, State Farm will encourage them to contact an agent to close a deal.

Under most arrangements, agents will be positioned as a referral source to the carrier. This is the approach being implemented by InsurBanc, a newly launched bank in Farmington, Conn., which is sponsored by Alexandria, Va.-based Independent Insurance Agents of America.

"Agents can generate easy commissions by referring business to a carrier's bank. But they also have to have some semblance of what a customer might need. Through basic e-learning tools, agents can build confidence to explain, say, a mutual fund product to customers," GartnerGroup's Harris says.

Because they are only referring business, it's doubtful that agents would have to incur significant investments for customer relationship management (CRM) or data integration software to drive the initiative. Larger agencies with a bigger stake might be inclined to though.

So the onus falls on carriers to make these investments. This doesn't appear to be deterring them because bank charters are indeed being drawn up. Northbrook, Ill.-based Allstate Insurance Co., is preparing to roll out an internally driven bank program this fall, propelled by independent agents.

Allstate was granted an Electronic Commerce and Personal Trust Services charter from the OTS in 1998. The objective was to conduct automated clearinghouse (ACH) transactions with policyholders and business affiliates, Mike Trevino, a spokesman for Allstate, says.

This charter serves as the precursor to a larger strategy-targeting existing policyholders to buy bank products "so they can save for a secure future," Trevino adds. Allstate declined to discuss other specifics-such as the Web's role in the bank.

Who are you?

No doubt, banks and carriers each have their own set of circumstances to cope with to master cross-selling financial services. Back-end data integration and front-end Web fulfillment and e-CRM initiatives all represent challenges (see related article on page 36).

State Farm's Reiner admits that "we may have many individuals who have multiple accounts with us spanning insurance and banking. But we haven't been able to come up with a matrix to mesh the data. We're in the process of resolving that issue."

Just like all other major initiatives that carriers have endeavored, success with banking begins with the proper corporate mentality.

"Carriers tout the fact that they are financial service providers," Harris states. "You see it now with Hartford Financial, Nationwide Financial, and so on. But do they really know who they are? I refer to it as the 'schizophrenia' factor because it's like developing a split personality. But by making a smooth transition to financial service provider, carriers will be stronger in the long run, which is good for consumers."

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