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Insurance Banks Ride Learning Curve

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It is going on three years since the Gramm-Leach-Bliley Financial Services Modernization Act became a reality, opening the doors to both insurers and bankers to begin providing those services that were pretty much off-limits since the depths of the Depression in the 1930s.

However, only a few players, relatively speaking, have begun doing business in each other’s backyards. Banks continue to acquire agencies and insurance brokers, while insurance associations and a few individual carriers have waded into the banking market.

The result, observers say, is a combination of excitement about the future, tempered by slight disappointment over the speed of progress, attributable to the inevitable learning curve.

“It has been an educational experience,” according to David T. Fronek, president and CEO of Assurance Partners Bank, the savings bank of the National Association of Mutual Insurance Companies in Indianapolis.

“I think bank entities related to insurance companies have not seen the level of growth and participation they thought they would before Gramm-Leach-Bliley,” he adds.

Since last April, the Independent Insurance Agents of Americas banking subsidiary, InsurBanc, has been steadily working to contract agents in Connecticut, New Jersey and Massachusetts, according to Michael Herlihy, the bank’s CEO.

InsurBanc has 100 agencies contracted to help distribute the banks services to individual consumers in the three states, and has trained about 250 agents in cross-selling bank products, says Herlihy. “We’re fairly pleased, to very pleased with these numbers,” he notes.

In addition to doing consumer business via agents in the three states, the bank is also doing commercial business with Big I affiliated associations in all 50 states and the District of Columbia, Herlihy says. The bank, which has roughly $14 million in assets, he notes, is looking to grow by $30 million this year to triple in size to some $44 million.

He says there might be entry into the consumer market in additional states in the second half of this year. “We want to get everything firing on all cylinders before moving into more states,” Herlihy observes.

Assets at NAMIC’s Assurance Partners Bank, based in Carmel, Ind., total $17 million, with the bank looking to double that this year, says Fronek.

The bank currently has 275 agencies and 29 insurance companies signed up to provide commercial lending, consumer auto and home loans, he says. Although it can do business in all 50 states, it is limiting its reach to 19 states in the Northeast and Midwest, to avoid growing too big, too fast, Fronek notes.

Assurance Partners Bank has a Web site capable of taking loan applications, but Fronek says they expect the fax and telephone to remain the primary means for submitting applications.

The primary goal for 2002, according to Fronek, is to see the bank double in size, both in assets and members.

State Farm Bank, the subsidiary of the Bloomington, Ill.-based insurer, continues to grow. With more than $1.3 billion in assets, the bank now has over 16,500 agents trained in 48 states and the District of Columbia to deal in banking services, according to Sherry Phillips, a company representative. (State Farm does not have agents in Massachusetts and Rhode Island, she notes.)

More growth is anticipated for 2002 as the company introduces a Visa Check Card and continues to expand existing bank programs, Phillips says. With a lot of the training behind them, State Farm will be looking at its agents to incorporate more banking products and services into their daily sales operations as the bank moves forward and positions itself for “pretty good growth” in 2002, she adds.

One of the newer insurer entries in the banking arena was New York-based MetLife. Last February, the company purchased Grand Bank, N.A. of Kingston, N.J., and renamed it MetLife Bank.

The bank is rolling out bank products to MetLife employees, with plans to offer banking products and services to outside customers at an as yet undetermined time in the future, says Toni Griffin, a MetLife representative.

Ironically, the company that was looked at as forging a new trail in the merger of banking and insurance services appears to be embarking in a different direction.

In December, Citigroup announced it would spin-off Travelers Property Casualty Corp. of Hartford into a separate company. The finance company is planning to sell 20% of the p-c insurer in an initial public offering, with the rest going to Citigroup shareholders.

At the time the spin-off was announced, Standard and Poors in New York said that although the p-c operations “added meaningfully to diversification, because of their low correlation with banking businesses, they did not yield many opportunities for synergies.”

Due to the pending IPO, Travelers is in its “quiet period” and no officials from the company could comment on the matter.

Mark Ruquet is an assistant editor of NU’s Property & Casualty/Risk & Benefits Management edition.

Reproduced from National Underwriter Life & Health/Financial Services Edition, February 25, 2002. Copyright 2002 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.

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