For many consumer-goods providers, one-stop shopping has long been regarded as the pinnacle of customer relationship management (CRM). But some have learned that offering one-stop shopping-as all encompassing as it can be-comes equipped with complications.In their zeal to become all things to all people, a host of consumer-goods providers lost their overall focus, and in turn alienated customers. Insurance companies that have established a bank over the past four years have found this dilemma to be more imagined than real.

Carriers such as Allstate, Principal and State Farm indicate that not only are they not losing focus on their core competencies, but they are actually sharpening the focus to thrive in the banking arena for the long haul.

The consensus is that their banks are meeting or exceeding expectations and are regarded not as "loss leaders" for insurance, but as profit centers.

Chartered in 1998, Principal Bank of Des Moines, Iowa, an operating unit of Principal Financial Services Inc., has leveraged relationships with Principal's financial services and insurance customers to hike its assets to $1.5 billion by the end of 2002 from $100 million in January 2000, according to The American Banker.

State Farm Bank, piloted in 1999, is leveraging its relationships with its property/casualty customers so effectively that the bank is on course to become profitable by the end of this year, according to Stan Ommen, president of Bloomington, Ill.-based State Farm Bank.

With an emphasis on consumer-oriented financial products, particularly certificates of deposit (CDs) and auto loans, State Farm Bank amassed $1 billion in assets as of September 2001, $2 billion as of March 2002, and $3 billion as of August 2003-before reaching its present $5 billion in assets.

Allstate Bank, a member of Allstate Financial Group, Northbrook, Ill., has accumulated more than $651 million in deposits, and is already regarded as profitable, according to Kevin Slawin, CEO of Allstate Bank.

Reliance on agents

Relying heavily on local agents to generate leads and drive distribution, the majority of these banks are targeting existing customers-and to a lesser degree non-insurance customers-who are in the market for basic banking products.

"About 93% of our bank customers are also insurance customers with us," says State Farm's Ommen. "We have 16,000 agents in our network and about 50% are active in the program. Agents have had the most success marketing CDs to existing customers, as well as auto loans, which they sell in conjunction with auto insurance. Overall, our operating model of not having to invest in brick-and-mortar helps us keep costs down, and enables us to be competitive on pricing."

Allstate Bank, meanwhile is "a component of a much larger strategy to help middle income Americans save for their financial futures, whether that's retirement, a new home or a college education. It is not a stand-alone strategy with separate brick-and-mortar branches," says Allstate's Slawin. "Our initial plan was to be a profit center and to help our agencies gather assets for cross-selling other products, and we are very close to our plan. We will continue to measure our success and celebrate our milestones."

While the numbers speak for themselves, industry analysts maintain that in the years ahead, insurers such as State Farm, Allstate and Principal will have to work even harder to sustain the early success they've experienced in marketing banking products. Failing to abide by the operational blueprint they've laid out could temper their growth.

Proceeding conservatively

Most insurers that have been granted bank charters appear to be proceeding conservatively. And, to their credit, they're doing so in a tough selling environment caused by the poor economy. Moreover, a "hard" insurance market has many insurers and agents concentrating first and foremost on insurance and banking second.

The hard market, in fact, played a role in convincing Farmington, Conn.-based Insurbanc, a federal savings bank established jointly by the Independent Insurance Agents & Brokers of America (IIABA) and agency group W.R. Berkley Corp. to tweak its business strategy.

Rather than emphasizing bank referrals for independent agents, Insurbanc, which marked its second anniversary this spring, is now placing an emphasis on providing bank products and services to agents themselves (see article below).

"In a hard insurance market, agents are primarily insurance agents first and bank product providers second," says State Farm's Ommen. "They have to learn how to juggle their priorities. And some of them have in-house staff that takes on the banking business when an agent needs to focus on insurance."

By taking full advantage of their customer data, providing training for agents, hiring individuals with banking experience and outsourcing key areas of the bank to reliable vendors, insurance-operated banks have been able to find a good mix of selling opportunities.

When it comes to providing one-stop shopping for customers, insurers have at least one advantage over a bank: They have accumulated reams of customer data to leverage for cross-selling and up-selling opportunities.

"Banks made great strides with customer loyalty in the 1970s, but they took a step backward by paying lip service to customer needs," says Mark Walker, group vice president, financial services business team leader, at Walker Information Inc., an Indianapolis-based firm. "Insurers have experienced slow but steady progress with customer loyalty," he says.

CRM focus on banking

Insurers are now just tapping the power of CRM analytics to identify insurance customers who would be most willing to acquire bank products.

Allstate Bank is in the process of determining which Allstate insurance customers would be most inclined to buy bank products, Slawin says.

State Farm is also in the beginning stages of adopting a CRM program focused on banking, says Ommen. In the meantime, agents are relying on their own instincts to push bank products out to their customers.

"Agents have done a good job with their account data to flag personal events and milestones and then respond with direct-mail campaigns," he says.

Operational strategies

While agents drive the effort externally, insurers that have launched banks have discovered several strategic and tactical elements that have to be addressed internally.

Picking the right management team is the first prerequisite to success. "While we have a good number of people on our staff that have banking experience, we did not have to recruit extensively from the industry," Allstate's Slawin says.

Outsourcing bank services to third-party vendors is viewed not as a luxury but a necessity, particularly to support handling transaction volume.

"As the bank was built, we analyzed each required function. In many cases we found outsourcing to be a secure, scalable and cost-efficient option," Slawin adds.

Without naming specific companies, Ommen says that State Farm Bank is aligned with five primary vendors. In some instances, vendors work with internal departments at State Farm, such as with consumer lending accounts.

For its Visa-branded check card, a debit card launched in July 2002, State Farm Bank relies exclusively on a third-party vendor, which Ommen would not identify.

Internally, State Farm is able to leverage its call center in Bloomington, Ill., to fold in the banking business. There are 275 call-center employees who handle banking inquiries.

If establishing trust among an uncertain consumer base is the most obvious obstacle that insurance carriers have in marketing bank products, another hurdle is convincing customers that "bricks and mortar" are not essential.

This has not been a sticking point to any of Allstate Bank's customers. "We are pleased to say that we have not experienced any more hurdles than the average brick-and-mortar bank," says Allstate's Slawin.

Check it out

But there are exceptions. "We've found that people prefer to do checking in person, and that's one reason why we haven't sold a great deal of traditional checking accounts," State Farm's Ommen says.

State Farm encourages customers to "walk in, call in, mail in or click in," to conduct their banking business. The walk-in option can be handled at any local State Farm agent's office, regardless of whether that agent is the customer's own agent. Thus far, the vast majority of products that are sold originate in an agent's office, says Ommen.

Some industry observers believe that the exclusion of a bank branch won't be the determining factor in the overall success or failure of banks sponsored by insurance companies.

"While it might take awhile for people to get comfortable banking without a local branch, the timing is good," says Michael LaPorta, senior partner for insurance, at New York-based Braxton (formerly Deloitte Consulting).

"There are a growing number of people who have direct-deposit accounts for their paychecks," he notes. "There's less reliance than ever on having to visit a bank branch."

As they engage in banking, insurers are advised to understand their limitations, especially when it comes to developing and marketing new products and services (see article above).

"Most insurers would be ill-advised to get involved in specialized areas of banking, such as lending, investments and business-to-business cash management," says Walker Information's Walker. "Insurers would be lost in those worlds-they are fraught with risk. Insurers have to stick with the basics of banking," he says.

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