Banks Made Almost $3 Billion On Insurance In 2001

Of 8,593 commercial and federally insured savings banks, 4,276 or 49.8% participated in insurance activities in 2001. These organizations earned $2.98 billion in insurance commissions and fee income, according to a new study completed by my firm.

The data in this study come from the financial filings of all commercial banks and federally insured savings banks in existence on Dec. 31, 2001.

The study, Michael Whites Bank Insurance and Investment Fee Income Report, shows that the largest banks–those with over $10 billion in assets–had the highest rate of participation (81%) in insurance and produced $1.77 billion or 59.5% of the banking industrys total.

Because of their size, this group of banks had the highest mean and median insurance income.

Two-thirds of banks from $1 billion to $10 billion in assets generated insurance income of $903.2 million, representing 30.3% of the industrys total.

Banks under $1 billion in assets accounted for $302.9 million in insurance income, or 10.2% of the industrys total in 2001. Of these, banks with less than $300 million in assets generated $179.8 million in insurance income, producing 46% more insurance income than banks with between $300 million and $1 billion in assets.

Bank insurance contribution to noninterest and total revenues. Insurance income for banks with under $1 billion in assets constituted a larger average percentage of noninterest income than for banks over $1 billion. Indeed, this ratio for banks with less than $1 billion in assets was 75% greater than that of banks with over $1 billion in assets.

The smallest banks, those with under $100 million in assets, ranked first in mean and median ratios of insurance income to noninterest income. In other words, insurance contributed proportionally more to small banks non-lending revenue than to that of any other size banks.

In fact, insurance contributed proportionally more to small banks total revenue than to that of other sized banks. The smallest banks average insurance income to net operating revenue was the second highest, and they had the top-ranked median ratio of insurance income to net operating revenue. (Net operating revenue, also called total revenue, is the sum of net interest and noninterest incomes.)

Bank insurance by region. Banks in the Midwestern and Eastern regions of the country dominated insurance income in 2001.

The Midwest had the highest bank-participation rate (55.7%) in insurance activities and the largest amount and share of bank insurance income–respectively, $774 million and 26%.

Collectively, the Northeast, Midatlantic and Southeast regions accounted for another $2.06 billion of insurance income, over 69% of the industrys total.

Banks in the Southwest and West had the least insurance income. Despite a relatively high bank-participation rate of 49.7%, banks in the Southwest produced only $73.5 million or 2.5% of bankings insurance income.

Western banks had the lowest bank-participation rate of any region and the smallest amount of insurance income, $71.5 million or 2.4% of the industry.

Bank insurance vs. investment fee income. Nearly 2,000 more banks earned insurance fee income than earned investment fee income in 2001. While investment fee income for the industry as a whole exceeded insurance fee income by three to one, banks with under $10 billion in assets earned $150 million, or 14.2%, more insurance income than investment fee income.

Banks with over $10 billion in assets earned $8.1 billion or 88.5% of all bank investment fee income. That was 4.6 times their $1.8 billion in insurance income.

Banks with $300 million to $500 million in assets earned $228.6 million in investment fee income, or 4.2 times their insurance income. It should be noted, however, that these banks also produced the least insurance income, $54.3 million, of any asset-class.

Banks with between $500 million and $1 billion in assets produced almost as much (90.5%) insurance income ($68.7 million) as investment fee income ($76 million).

Three other bank asset-classes produced more insurance than investment fee income.

Banks with between $1 billion and $10 billion in assets generated $903.2 million in insurance income, 43.7% more than their $628.4 million of investment fee income.

Community banks between with $100 million and $300 million in assets had $108.4 million in insurance income, 5.9% more than their investment fee income of $102.4 million.

Banks with under $100 million in assets earned $71.4 million in insurance income, 3.4 times more than their investment fee income of $21.0 million.

New insights and lessons. The research unearthed much fresh and useful information about bank sales of insurance:

  1. In 2001, more banks produced insurance than investment fee income. Still, only about half sold insurance last year. The conclusion: More banks can earn insurance fee income.
  2. As expected, the biggest banks dominated retail and institutional investment fee income activities. They also earned the most insurance income.
  3. But the impact of insurance on noninterest income and net operating revenue in 2001 was greatest for the smallest banks and more important to them than investment sales. Thus, while a banks size may indicate the amount of insurance income it can earn, bank size does not necessarily have any bearing on success. Smaller banks are succeeding in insurance.

Those banks that produce nominal amounts of insurance fee income should examine their under-performing programs to make the most of existing efforts. Those not yet selling insurance should assess realistically its potential and seriously consider effective ways to enter this market. Both are missing out on insurance fee income that can significantly augment their total revenues.

For banks committed to insurance, it has become a meaningful contributor to bank revenue, regardless of their size.

Michael D. White is chairman and chief executive officer of Michael White Associates, LLC, a bank insurance consulting firm in Radnor, Pa. His e-mail address is mwa@BankInsurance.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 14, 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.