Creating Successful Agent-Bank Alliances
Its a long and imposing process for banks to learn how to sell insurance, and thats where many opportunities for agents come in.
Short of buying an agency outright or setting up their own agency, banks often seek to partner with established producers who know life and health insurance, annuities, employee benefits and related products that can add to the banks fee-based income.
Experts say, however, that many of these alliances have flopped because they got off to a bad start or ultimately sputtered due to a failure to understand each others business.
If it is to work, even an informal alliance must start off with a thorough discussion between agency and bank, the experts note.
“You have to be able to work with the bank and come up with a game plan as to what your roles are and what your commitment and theirs are,” says Valerie Jordan, principal of Jordan & Jordan Associates, a consulting firm in Belchertown, Mass. “Otherwise, it is doomed to failure.”
Experts note, too, that banks are fearful an outside agent might fumble away the customers trust.
“The agency will view the bank as a lead-generation source. But its not exclusive to the agencys business; its just one source among others,” observes Robert V. Wick, head of R. V. W. Consulting, Davidson, N.C. “Whereas if Im an employee of the bank, the bank sees me as a partner.”
James Campbell, a principal at Reagan Consulting, Atlanta, says joint ventures and other formal alliances with banks have not generally worked, and many are dissolved after a relatively short life.
But Campbell reports a developing new approach for bank-agency alliances that is currently being discussed by one or two banks and local agencies, which he declines to identify, in the South.
The proposed alliances would take the form of a limited partnership established jointly by a bank and an agency that offers commercial lines, but also employee benefits, as well as some life and health insurance and annuities.
The bank would front most of the money required, but the partnership would be owned 50-50 by bank and agency, says Campbell. The agency would commit a few employees and a great deal of know-how to the venture.
Ultimately, the new agency would probably expand through acquiring other agencies, Campbell explains.
“Its a separate business that the bank and the agency can build and manage,” he says. “Its an arrangement that offers some promise and potential. Its a little different than, Hey, lets market insurance together. Thats too easy to put on the back burner.”
Campbell points out that in a typical insurance marketing alliance, the agency winds up essentially creating two classes of business: policies sold internally and those sold through the bank. Because business sold through the bank requires the agency to split commissions, that business can be given short shrift.
Under the proposed LLC format, the partnership would pay compensation expenses, rather than the original agency, Campbell says.
In addition to most of the capital, the bank would bring cross-selling opportunities to the partnership and facilitate meetings between agents and commercial customers, he adds.
Another approach currently growing in use in Connecticut and Virginia is for the state bankers association to create an agency, which then places agents directly in local banks.
“The agents act as third-party marketers,” points out Maria Thomson, managing principal of Thomson Management Solutions Inc., Brimfield, Mass. “It works well for smaller banks.”
Existing agencies can also partner successfully with banks on a less formal basis to cross-sell a variety of insurance products, but its not easy to set up such an arrangement, she adds.
“It requires a fair amount of gearing up,” says Thomson. “You have to think about how the bank is to be compensated. Will they get a percentage of the premium?”
John Wepler, a partner and senior vice president of mergers & acquisitions at Marsh Berry & Company Inc., Painesville, Ohio, thinks most banks that enter into alliances do so because they are not completely ready to make a long-term bet on the insurance business. Often, those banks dont really buy into the business, Wepler says.
“An alliance can be a way of dabbling,” says Wepler, “and thats why so seldom do you see cross-referral programs work.”
Support from the top is essential if bankers are going to take the need for agency referrals seriously, Wepler observes.
“If the bank CEO says, Refer customers to the agency or well find someone who will, it can work,” he says.
But they have to be the right kind of referrals. To be successful with referral programs, banks must first become familiar with an agencys special expertise. If bankers start referring business that the agency cant write, then the partnership wont work, Wepler points out.
Michael White, head of Michael White Associates, Radnor, Pa., says he has worked with Wilson Bank & Trust in Lebanon, Tenn., to develop an insurance program in partnership with independent agency THW Insurance Services, LLC, to offer insurance products right in its main office, with emphasis on health and employee benefit coverage.
“There are some good opportunities, more so for community banks, not so much for big banks,” White says.
Banks with a good proportion of small business customers also are good prospects for a profitable agency alliance, he says.
“Many small-business banking customers dont have employee benefits programs,” White points out. In some cases, the agency can sell the banks small-business customers on sponsoring health care or other employee benefits. If not, the agency may still have the opportunity to help the employer set up a voluntary worksite benefits program at the employees cost, White says.
Another key opportunity for agencies that have the required expertise is a bank with a large number of very wealthy clients.
Michael J. Brink, director of the Atlanta agency, Nease, Lagana, Eden & Culley Inc., says that market is surprisingly large.
Nease, Lagana specializes in wealth-transfer planning for what Brink calls the “ultra-affluent,” that is, clients with $10 million or more in assets.
“There are not many players in the market,” Brink says.
His agency has been working with an unnamed regional bank for the past two years, he says, placing about $500 million in coverage in that time.
The key to any successful bank-agency partnership, he says, is to stay focused. Thats where most relationships between banks and insurance providers have failed, Brink observes.
He cites one large regional bank in the Southeast that about four years ago allied with Nease, Lagana to sell life insurance products to its affluent customers.
But it turned out the bank targeted more customers than the agency felt it could handle, because the banks definition of “affluent” was too broad. As a result, the relationship was recently dissolved.
“They defined affluent as $100,000 in income or $300,000 of investable assets,” Brink recalls. “But someone who can handle that kind of client isnt going to be able to handle $30 million and $50 million clients.”
Brink also warns agents to remain aware that insurance and banking are very different cultures. Most people in insurance dont understand the patience it takes to develop a banking relationship with wealthy or corporate customers, he explains.
“If you work with a lender, hes worked all his career to have a good lending client, and if he refers that client to someone who messes up the relationship, that costs him a repeat client who has future banking needs,” Brink says. “So, the banker has to be careful about who he brings in.”
At the same time, the bankers have to see insurance producers as peers if the relationship is to work, he argues.
“Its even better if they look up to the agent,” he says. “They respect professionalism.”
To that end, having a highly educated, trained and experienced staff within the agency is important, Brink says.
Another key to success is to have an insurance champion within the bank, he adds.
“Bankers wont keep you top-of-mind unless you continually remind them,” says Brink.
Most of all, agents need genuine introductions from bankers to promising prospects, not just referrals, he says.
The agency can help its own case by providing bankers with some of the actual verbiage that should be used in the introduction, Brink suggests.
Many bank introductions, Brink notes, are matter-of-fact formalities along the lines of, “We have a relationship with an agency that sells high-end life insurance. Would you do me a favor and just meet them?”
“That customer is not engaged,” says Brink. “Hes just doing the banker a favor, because hes the guy who lends him money. Thats not a good way to start the process.”
To make the relationship work, the banker has to be intimately involved not just in making the introduction but also in follow-up, he adds.
Bankers will be more inclined to elevate producers in the eyes of clients if the agency has a methodical process to keep the bank continually informed about meetings with their clients, policies underwritten or placed and other contacts.
“If they introduce you and you dont keep them informed, theyre not going to introduce you again. I dont think thats always fully understood,” Brink warns. “The customer must always be priority one and taken care off. If the banker feels that, he will be happy to stay involved.”
Catering to the super-affluent bank client also requires life insurance products that are geared to that market, Brink emphasizes. He notes that Nease, Lagana has access to institutionally priced life products offered through the M Financial Group, Portland, Ore., a large insurance buying consortium that works with carriers to develop products for very wealthy clients.
Brinks advice to the agency looking for a bank to partner with is to start by taking a long, hard look at the banks level of engagement.
“They have to be committed to a long-term process, committed to the necessary manpower. And while the agency cannot pay an individual banker a commission, it can insist on knowing how the bank will structure the bankers bonus at the end of the year, to be sure the banker receives recognition for additional revenues he generates from insurance business.
“We want to know how the bankers are going to be compensated,” concludes Brink. “They have to have some skin in the game.”
Reproduced from National Underwriter Edition, March 10, 2003. Copyright 2003 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.