Banks Aim to Lure Customers by Linking Up With Insurers
As banks try to expand into the insurance business, David Seward is just the kind of guy they want to impress.
Seward, chief financial officer for Hastings College of the Law in San Francisco, is among legions of corporate and institutional executives across the country who control a glittering prize--billions of dollars in deposits and premiums. By offering these executives one-stop shopping for all their banking and insurance needs, banks hope to seize that prize and lure them into consolidating their financial services under one umbrella.
But so far, it’s proving to be a hard sell.
“I have relationships with my insurance broker and my commercial banker where I can get on the phone, talk with them directly and get really good outcomes,” Seward said. “You’d have to make a very compelling case to make me alter those relationships.”
Seward banks with Union Bank. He buys his school’s property-casualty insurance through Acordia Inc., a unit of ACO Brokerage Holdings Corp. with 112 offices in 12 states and $400 million in annual revenue. Wells Fargo, which completed a deal to buy ACO on May 1, wants to leverage Seward’s connection with the brokerage to entice him to switch to Wells.
The Wells-Acordia deal is only the latest of the consolidation efforts, which began in 1998 when Citicorp merged with Travelers Group in a $140-billion deal, forming Citigroup. More recently, Bank of America and Farmers Insurance Group, a unit of Zurich Financial Services, announced a strategic partnership to deliver banking services to the insurer’s customers. Scores of other banks across the country have formed their own connections with the insurance industry, with mixed results.
The strengths of the players in the Wells-Acordia and BofA-Farmers deals show what these banks sought in linking up with the insurers: Acordia targets middle-market businesses, Farmers small businesses and consumers. But the deals position the banks in the distribution networks feeding these marketplaces. They don’t put the banks in the business of underwriting insurance itself. By contrast, in buying Travelers, Citicorp bought a manufacturer of insurance--a completely different strategy.
“We’re really excited about the niche market plays,” said Tim King, president and chief executive of Wells Fargo Insurance Inc. in Minneapolis, who is responsible for the merged insurance operations. “Acordia is the biggest agency in the country selling to ski resorts, and Wells is the largest lender to ski resorts. Wells is No. 2 among educational finance lenders; Acordia is one of the top agencies in universities and colleges across the country.”
Wells also hopes to find synergies cross-selling banking and insurance services to museums and wealthy individual art collectors, to energy producers and to consumer auto buyers, King said.
“That’s one of our major objectives--to cross-sell to our customers,” he said. “We want to put together teams that understand both sides, and we know there’s a lot of educating we will have to do in the beginning.”
The strategy makes Wells a conservative player among banks moving into the insurance business, according to Chip Dickson, an analyst with Lehman Bros. in New York, but it’s not clear whether the synergies the bank seeks will develop.
“Most banks don’t seem to have a huge interest in manufacturing insurance,” Dickson said. “They’re interested in distributing insurance because they want to get more revenue from their customers. They’re trying to build something around their customers’ needs--and they hope that their customers are inclined to consolidate with one provider.
“We can’t yet say whether it’s succeeding,” he said, “but we are seeing a convergence take place.”
Another factor is at work in the convergence of the banking and insurance industries, according to Charles Brinkley, who leads the insurance e-business strategy group for the management consulting firm PricewaterhouseCoopers in New York. Banks don’t like losing their customers to other banks, Brinkley said, and they think they can keep them on the books by offering them a variety of financial services. Thus Wells Fargo and Bank of America play offense and defense alike in linking up with Acordia and Farmers; each bank defends its customer base with its insurance connection--and hopes to threaten the customer bases of its competitors.
“The convergence in the financial services industry poses the threat to both banks and insurance companies that one day their customers will go to the other guy,” Brinkley said.
“So this is an account-protection strategy. The notion is: I don’t want to find my customers, whom I have spent a century accumulating, buying financial products from other companies that may turn around and provide them with banking services as well.”
Banks following the Wells strategy also see an opportunity to turn a profit selling insurance to their own customers, he added. To do this, however, they must leverage the information they collect on those customers--for example, by bringing an insurance agent into the picture when a bank customer, having just financed a business expansion with a big loan, shows a need for additional coverage--and a number of legal and regulatory obstacles stand in the way.
“I’m not sure how much banks and insurers can share information on their customers,” he said. “What might a bank know about you that you wouldn’t want your insurer to know, or vice versa? What if you borrow money to pay a hospital bill?”
Another, very practical obstacle is that among mid-size institutional and corporate enterprises such as Hastings College of the Law, the banking and insurance relationships are often well established and personal--and not easily changed. Seward, for example, has done business with Art Newman, senior vice president of Acordia in Encino, for seven years, and with Mark Roeddiger, assistant vice president of Union Bank in San Francisco, for five years.
“They’re separate relationships,” Seward said. “I know that banks want to define themselves as financial supermarkets, and this appears to be where Wells is going with this. But that kind of coordination is easier said than done.
“Ultimately, if the end result is a higher level of service at lower cost, it will work,” he said. “If not, it won’t.”
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Juan Hovey can be reached at (818) 709-6420 or via e-mail at jhovey@socal.rr.com.
