Over 300 agencies can now attest to life after being acquired by a financial institution.

Despite varying goals, many agencies and their financial institution partners are achieving a successful integration, particularly in those transactions where the relationship is founded on realistic expectations and honest communication.

Failed bank/agency combinations, on the other hand, are often a by-product of poor communication, unrealistic expectations and broken promises, which almost always lead to dissatisfaction and turnover.

In most deals to acquire existing insurance agencies, financial institutions grade success by a set of criteria that include:

–Return on investment;

–Growth rate;

–Pre-tax margin;

–Bank/agency integration; and

–Amount of cross-selling.

The agency, on the other hand, has its own grading system that often includes:

Degree of autonomy allowed;

Number of cross-selling opportunities available;

Amount of formality added to their job;

Number of meetings and other new activities not related to sales and service; and

Opportunity and level of incentive-related compensation.

The opportunity for cross-selling is thus the only goal shared by both parties.

For banks, formal in their organization and driven by a responsibility to outside shareholders, advancement is determined by a combination of factors: not just performance, technical proficiency and hard work, but also the ability to adapt to a well-established cultural mold. Individuals have strict roles and areas of responsibility but rely heavily on information drawn from committees and meetings.

The culture of a successful insurance agency, by contrast, is quite different.

Typically, insurance agencies are owned by the leading rainmakers of the organization (the producers), who are not necessarily the best managers. Producers often choose an insurance career to capitalize on a sales-oriented personality and a desire to achieve high personal income goals.

Agency sales positions attract creative individuals who want flexibility in their work life and a desire to be compensated according to their efforts. High-quality producers seek agencies that afford an opportunity for ownership. Most insurance agents do not have formal general business training or education, but succeed through a combination of sales drive and entrepreneurial skills.

High-performing agencies combine an aggressive sales culture with a desire to meet the needs of their customers through responsive service and prompt payment of claims. The sales and service focus in the finer insurance organizations breeds a problem-solving, personal and loyal relationship with their clients, who are typically growth-oriented middle-market businesses and their entrepreneurial owners. The consultative approach taken by the peak-performing agencies enables these agents to enjoy flexibility in their schedules. This allows them to spend quality time with their families as well as to strengthen relationships with customers on the golf course or through other informal contacts.

At the same time, higher-performing agencies are sophisticated about continuing education, financial performance and employee retention.

How can a bank, desiring to add an insurance line of business by acquiring an agency, bridge this cultural gap? How can managers in a bank, where the badge of honor is how many hours they work, respect an insurance agent, whose badge of honor is how large a book can be handled while enjoying as much free time as possible?

In our experience with bank-agency deals, we have found there are 10 ideals that will drive success, without the baggage of a culture clash. These are the following:

1. Thou shall set realistic expectations and budgets for cross-selling. Cross-selling expectations are often created by banks and incorporated in the pro-formas of the agreement to attain valuation expectations. Then, in the years after the closing, both bank and agency are disappointed in the results, even when overall cross-selling performance has improved. The bank should always set cross-selling goals with the assistance of the agency and be conservative in the early years following the deal, permitting cross-selling to gain momentum over time.

2. Thou shall celebrate incentive compensation. The insurance agency tradition is “You eat what you kill.”

Banks should preserve and breed this culture by providing incentives to bank employees for referrals. Referrals should be part of their jobs and, likewise, part of their compensation program, within any restrictions imposed under some state laws.

3. Thou shall not kill the golden goose. Agree on a sound producer compensation plan before closing the deal, and live with it afterwards. Because producer compensation is the highest single category of expense in an agency, it is often the first item considered for cuts when budgets get tight. Produce or perish should be the mantra and the basis for the plan.

4. Thou shall not impose bureaucracy. Producers cannot spend time with existing customers, prospect for new customers or close new deals if they do not have the time. Try to eliminate unnecessary meetings that restrict time available for production.

5. Thou shall not expect to leverage bank efficiency. Accept that an insurance agency will not improve the banks efficiency ratio. Instead, the bank should focus on attaining return-on-investment and return-on-assets targets.

6. Thou shall not shed the agency automation system for the sake of centralization. Agency financial reporting and management system software is designed for the business and provides important management, customer and policy information, premium receivable and payable, and statistical operating comparisons.

7. Thou shall understand that earnings will be inconsistent. Regardless of the effort put into managing and projecting contingent income, it will not show a pattern that increases month after month, quarter after quarter, as the bank expects its own earnings to increase.

For one thing, contingent income, or insurance company underwriting profit shared with insurance agencies, is paid in the first quarter, based on the prior-year results. For another, insurance renewals and new business production are not spread evenly throughout the year.

8. Thou shall understand and embrace managing to a plan. Agencies should understand that the regimented planning process required by the bank will improve their business, despite the short-term pain. Furthermore, agents must recognize that a plan in a banking environment is a promise that is signed in blood that will be actively monitored.

9. Thou shall plan on change. Agency principals should not tell their producers and staff that nothing will change. No matter what promises are made at the closing, bank managers and bank strategy will change. Agencies must recognize that, over time, the bank may seek to modify items such as organizational structure and employee benefits. Open communication between the bank and the agency is the only way that such changes can evolve from a broken promise to a prudent business decision.

10. Thou shall acquire a foundation agency. By acquiring an agency that had sufficient quality to remain independent, but is looking at the acquisition by the bank as a strategic opportunity, the bank will significantly improve its chances of success. It is important to do a thorough job of screening the candidate agencies and to acquire an agency that will enhance the banks image and grow profitably without assistance from the bank.

Convergence of banking and insurance is a wonderful opportunity for financial institutions and agencies. By approaching the transaction with their eyes open, doing a good job of communicating and agreeing to expectations before closing, both sides can grow profitably together.

Wayne A. Walkotten is a vice president and senior consultant at Marsh, Berry & Company, Concord, Ohio, a consultant to independent agency owners and brokers. His e-mail address is wayne@marshberry.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, July 27, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


Copyright 2001 by The National Underwriter Company. All rights reserved. Contact Webmaster