Wachovia Insurance Services is looking to take its place on the national stage with a major agency acquisition, according to its newly named CEO, Stewart McDowell."Our next step will be a dramatic move toward making Wachovia a national insurance brokerage powerhouse," says McDowell. And this signals a desire to move beyond cross-selling, where it has already been successful, he says, to selling beyond the bank's customer base.

"We have a very healthy appetite to grow the insurance business dramatically, and the way you do that is through acquisitions," McDowell says, adding that the Charlotte, N.C.-based company is specifically looking for big acquisitions.

Agency acquisition

McDowell compares Wachovia Insurance Services with Wachovia Securities, which formed a joint venture with Prudential Securities in July.

That deal "basically took us from being more or less an in-the-footprint stock brokerage firm" to a national business, he explains. "We have the same vision for insurance brokerage."

In 2004, Wachovia will be seriously evaluating this step and may do a deal, he said, though he acknowledged the list of agencies the bank could buy to become the size it wants is "pretty short."

"If you look at the list of brokers that could double the size of Wachovia or more, there are not that many," he says. Wachovia expects to report $200 million of insurance revenue this year, with about 40% of that coming from employee benefits and most of the rest from property/casualty.

National scope

A purchase of this size would probably take Wachovia Insurance outside its predominantly southeastern branch network, but this fits with CEO Ken Thompson's vision of having a few businesses with national scope.

"There are a couple of reasons that we would go outside the bank's footprint. Number one, because this is a good business to be in on a national basis, and number two, because I think the bank's footprint will expand," he says.

Wachovia Insurance is now big enough "to attract experienced brokerage management," he says, including not only him but also executives hired recently from Palmer & Cay in Savannah, Ga.

"I think we're in a natural transition here to a team that has the experience to operate a business like this and take it to the next level."

Cross-selling remains an important component of the insurance unit's operations, he said, but drumming up business outside the bank's customer base is equally, if not more, important.

"About half of our new business (in 2003) came from cross-selling," he explains, but he feels the ratio is too high. "I think the correct ratio is for every one dollar of bank referral sales we should have two dollars from outside."

McDowell says an overemphasis on cross-selling limits the universe of clients the agencies can pursue. "I think it's just good business not to overly rely on cross-selling," he says. "You've got a lot of accounts you can cross-sell before you run out of prospects, but ultimately you do. And you'll lose your edge if you're not out there prospecting accounts."

With the hard market probably past its peak, agencies are realizing that "it's a good time to sell," McDowell says. "Presumably a seller is always interested in selling his or her business at the top."

James Campbell, a senior vice president at Reagan Consulting in Atlanta, says, "I think what we're seeing is that a growing number of banks are looking at their insurance distribution business as a stand-alone business that they want to grow and build, and often build beyond the bounds of the bank footprint."

A quantum leap

Doing a huge deal-what he called "a quantum leap"-is actually a logical evolution of the insurance strategy at many large banks, Campbell says.

The next big step, which he says is perhaps a few years away, is for a bank to buy one of the large publicly traded insurance brokers such as Willis, Aon, or Marsh. Such a deal "changes the whole game." But as banks get larger and the number of national agencies dwindles, it may happen, he says.

Craig Whitehead, a senior consultant at Milliman USA in Chicago, says Wachovia has shown "a lot of energy and creativity" in its insurance strategy so that it is not surprising the company would be in the forefront of the trend toward national agency operations. But the limited number of potential acquisition targets is a problem, he said, especially for a bank that evaluates its purchases very carefully.

Building an agency operation that is profitable and strong beyond cross-selling is also a key move, Whitehead says. "If you're cross-selling you have limited yourself to some subset of your current clients, when the people who need insurance are the people who need insurance, and they bank all kinds of places," he says.

This article first appeared in American Banker, a Thomson Media publication. It has been edited for this publication.

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