Acquisitions End Two Noted Bank Insurance Programs
Recent acquisitions by big banks have brought an end to two respected bank-insurance programs, industry observers say.
On Oct. 28, the Federal Reserve Board approved the application from Citigroup Inc., New York, to buy Golden State Bancorp, Sacramento, Calif., including its California Federal Bank subsidiary.
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The next day, the Office of Thrift Supervision in Washington approved Citigroups application to set up a new federal savings bank, Citibank (West), FSB, to acquire Cal Fed.
Earlier this year, Washington Mutual Inc., Seattle, closed on its purchase of the Dime Savings Bank, New York, effectively ending another aggressive bank insurance program.
Citigroup and Washington Mutual both sell large volumes of annuities and life insurance products and will continue to do so at the acquired institutions, observers note. The question, however, is one of approach.
Cal Fed and Dime were both noted for penetrating a high ratio of their customer base with insurance sales, notes Kenneth Kehrer, head of Kenneth Kehrer Associates, a Princeton, N.J., bank insurance consulting and research firm.
“In both mergers, insurance isnt the dog. Its the tail,” observes Kehrer. “Life insurance is a supplemental business. The [acquisition] decisions are being driven by the investment business.”
Kehrer says Cal Fed and Dime had “two of [the] finest insurance sales programs in country. Dime is one of the leaders in selling life insurance through banking staff; Cal Fed a leader in selling life insurance through brokers and financial advisors.”
Both banks had a significant influence on other banks insurance sales programs, Kehrer adds.
“On the other hand, both Citi and Washington Mutual also have excellent programs, but they do things differently. Life insurance is not as important as investment sales to these two banks,” he says.
That is because in general, insurance is only 5% to 10% of investment sales revenue in banks, he adds.
Another consultant was less generous in his appraisal of Citis approach to insurance.
“Citi doesnt know how to extend the Cal Fed program into its program, so theyll just shoot it,” he commented.