Mamaroneck, N.Y. – Recent research has shown that banks are increasingly moving into the insurance business, and now there may be even more reasons for them to do so. New data from the Bank Insurance Market Research Group (BIMRG) shows that banks that sell insurance make more money than banks that don’t. That’s one conclusion from the Mamaroneck, N.Y.-based research group’s examination of 2007 bank data. Examining FDIC call report data, BIMRG found that banks with some insurance activity had 44% higher (median) net income in 2007.
Moreover, this trend toward higher (median) net income persisted in all asset-size groups. Among banks with $10 billion or more in assets, for instance, banks with some insurance activity in 2007 scored 15% higher in (median) net income.
“The data suggests that pursuing a diversification strategy—of which insurance brokerage is often a key part—may have paid off for banks in 2007,” says Andrew Singer, managing director of BIMRG, “particularly at a time when banks’ traditional income sources are under pressure. An insurance agency business can help smooth out earnings and act as a hedge against interest-rate volatility.”
Insurance Networking News reported about a month ago that the nation’s bank holding companies increased their total insurance revenue from $43.5 billion in 2006, to $43.7 billion in 2007, according to findings released by Radnor, Pa.-based Michael White Associates and Washington-based American Bankers Insurance Association. 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.
BIMRG also singles out Citigroup, Wells Fargo and BB&T as the top U.S. bank holding companies in 2007 as measured by (non-annuity) insurance brokerage revenues. The banks that follow include Bank of America Corp., Wachovia Corp., JPMorgan Chase & Co., Regions Financial Corp., Commerce Bancorp Inc., BancorpSouth Inc. and Unionbancal Corp.
Overall, the median net income at 7,787 operating banks and savings banks was $1,071,000 in 2007. The median at 3,596 banks and savings banks that reported some insurance activity—less than half (44%) of the total number of banks—was $1,543,000. The largest discrepancy was in the smallest banks. Median net income at 5,533 banks with assets less than $250 million was $655,000 in 2007. (That is, the middle-ranking bank in this asset-size group reported $655,000 in profits.) Among the 2,377 with some insurance activity, however, the median was $919,000—40% higher.
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.
The ratio of non-interest income to total bank revenues among all 7,787 banks was 14%. At banks with some insurance activity, this closely watched ratio was 17%.
A more in-depth analysis will be presented in BIMRG’s upcoming “Who’s Who in Bank Insurance.”
Source: The Bank Insurance Market Research Group and INN archives
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