Since 2000, when the Gramm-Leach-Bliley bill made it possible for banks to enter the insurance business, the selling world has seen an invasion of financial institutions, such as Wachovia and BB&T, who have bought insurance agencies or created their own to sell life, disability and other products.Now, the insurance industry seems to believe that turnabout is fair play. In addition to a number of insurance companies, including MetLife, State Farm and Allstate, that created their own banks several years ago, one firm, InBank, is going so far as to offer insurance companies "private-label banking," which executives say allows insurers to sell banking products without the attendant capital costs and regulatory responsibility.

"Insurance companies would like to cross-sell more products, increase their income and more fully meet their customers' needs," observes Michael White, president of Michael White Associates, a bank insurance consulting firm based in Radnor, Pa. "If the company sells life insurance, for instance, it can keep the assets under management."

Industry insiders indicate that this development was almost inevitable amid the experimental convergence of insurance and financial services.

"If you look at the world out there, there are all kinds of convergence of financial services," says James Coyne, chairman and CEO of InBank, Alexandria. Va. "Ten years ago, the industries were self-contained. Now, everyone is getting into everybody's backyard."

Different customers

The banks begun by insurance professionals do not always serve the same constituencies. Allstate, for example, is not marketing its banking services through the worksite, but instead to individuals, integrating such products as life insurance, long-term care insurance, mutual funds and variable annuities into financial plans for their customers.

Meanwhile, New York-based MetLife has been offering its banking products on its voluntary benefits platform for the last two years. Assistant Vice-President Melissa Macerato reports that MetLife works with some 30,000 employers and so far, about 270 have opted to include the bank benefits in their packages. Most of those clients, Macerato says, already have MetLife products.

Macerato admits it takes a long time to raise awareness of what the banking suite can offer. However, she believes it will be much easier to communicate to potential customers the value of the company's savings accounts and CDs than to do the same thing with insurance.

"Everyone has a banking product," Macerato remarks. "We can tell them of our great rates and why they'll get better savings. It's a great way for brokers to add an additional product to their voluntary benefits suite. There's no insurance underwriting and it's a simple product to sell."

The National Association of Mutual Insurance Companies (NAMIC), Indianapolis, and the Independent Insurance Agents and Brokers of America (IIABA), Alexandria, Va., have set up their own banks to cater specifically to their membership. Robert Pettinicchi, the executive vice president of IIABA's InsureBanc, explains that the association "felt there should be a bank for the little guy, a place that would understand and value the agent's business.

"We have a service business that is not capital intensive," Pettinicchi continues. "Our book of business is intangible, and banks don't make loans against intangibles."

Whatever the reason and whoever the audience, more and more insurance professionals are looking toward the profits banking could bring. However, it has taken several years for banks to get the hang of selling insurance and working with insurance agencies, and it looks like carriers may be experiencing similar growing pains.

State Farm's bank has grown rapidly, with $10.4 billion in assets by March of this year. However, according to FDIC statistics, the Bloomington, Ill.-based company's cumulative earnings over their five years of business put them $144 million in the hole as of the end of last year. MetLife has some $3 billion in assets, with debt of $66 million, and Allstate has $971 million in assets, and negative $18 million in earnings.

Bank façade

InBank's Coyne believes his service can save other insurers from that kind of financial liability. InBank is not really a bank, although it is supported by one. What it does is handle the administrative duties and financial risks of running a bank-what Coyne calls "giving the façade of a bank."

Coyne explains that he might walk into an insurance carrier's office and guide them through the process of marketing bank products, whether to an employer workforce or to the general public. It will take a few weeks before people walk in on a consistent basis to buy CDs, but once they do, it is only a short step for the employee to buy an insurance product or two. What's more, Coyne says, an insurer can do this "without risk, capital investment or the other issues a company has if it buys or builds a bank."

And these are the types of customers an insurance company wants. Most of the time, they will not stop at purchasing a CD.

"A person who buys a CD through an insurance agency has more of the characteristics of a mutual fund investor," Coyne reports. "He has an investor profile, and he's probably looking to be pitched some insurance products. We're drawing customers an insurance company would love to have."

This article originally was published in Employee Benefit Adviser, a SourceMedia publication. It has been edited for INN.

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