James Muse – Good information

Like the first tremulous steps of unfamiliar dance partners, banks in Massachusetts have entered the insurance market eagerly, yet unsteadily, as they step into a world with no lead to follow.

Playing the part of dance instructor, the newly formed Massachusetts Bank Insurance Association held its first seminar last Tuesday in Needham, an event attended by more than 100 industry professionals. The purpose of the meeting was to update members on bank insurance regulatory issues and provide a networking forum for its 65 members and the potential members in attendance.

The MBIA was launched in May as an offshoot of the Massachusetts Bankers Association. Since banks gained the legal authority to sell insurance in 1998, more than 50 institutions have received approval to enter that field from the state’s Division of Banks, with more applications pending.

According the Kevin F. Kiley, chief operating officer of the MBA, the event was designed to review the implementation of laws allowing for banks to sell insurance and highlight policy issues that have since come up, such as a recent lawsuit by insurance associations against he Office of the Comptroller of the Currency regarding, in part, the prohibition of banks soliciting for insurance products while a loan is pending.

But perhaps more importantly, the meeting served as a forum for bankers to clear up misunderstandings regarding the nuances of regulations applied to banks selling insurance. The state commissioners of the DOB and the Division of Insurance both attended the meeting. Additionally, presentations were made regarding upcoming regulatory issues and the differences between federal and state laws, including disclosure requirements.

The MBIA will evolve to help shape the future direction of bank insurance in Massachusetts, said Kiley. Additionally, it will provide education to bankers and work to strengthen the relationship between the banking and insurance industries.

Education is extremely important given that the idea of banks entering the insurance industry is so new, no bank has emerged as the ideal model other banks may look to in building their offerings. Instead, each bank has to use the whetstone of internal experience and evaluation of their goals, according to event speaker Stephen P. Amarante, president and chief executive officer of Hartford, Conn.-based Infinex, a third-party marketer for more than 54 banks in New England. Amarante spoke during a roundtable discussion regarding bank insurance sales culture. Infinex broke the insurance industry down into life, health and property and casualty groups when it first began its evaluation, said Amarante.

Closing Time
Despite the uncertainty, many banks have taken a leaderless plunge into the potentially lucrative insurance market, according to a recently released survey of more than 360 banks and thrift institutions conducted by the American Bankers Insurance Association, an affiliate of the American Bankers Association. In the last year, banks generated more than $45 billion in premium volume, said Ken Reynolds, managing director of the ABIA. That figure represents a 22 percent increase over the previous year’s volume. The ABIA has executed the study each year since 1997, since which time the annual growth rate has been 17 percent, Reynolds said.

The majority of banks – 58 percent – entered the insurance arena through acquisition of existing firms rather than de novo or joint venture arrangements.

Seventy percent of banks sell some type of insurance, he said. Of course, the choice of products and whether to sell insurance at all varies by region. In Massachusetts and much of the Northeast, banks selling insurance has become fairly common.

Reynolds also pointed out a growing trend that may begin to emerge in Massachusetts, which supports a strong community banking population. Community banking organizations, while less often involved in selling insurance than large [banks], are coming on strong, he said.

One trait shared by banks that have successfully entered the insurance market is the ability to translate referrals into sales. Getting the banking side of a financial institution to refer qualified, interested potential clients to the insurance side and then closing the deal is important. In the survey, banks were able to convert referrals to an actual sale 59 percent of the time.

The banks experiencing the most growth have well developed referral-management programs that emphasize employee training in cross-selling and are tied to an incentive or rewards program, he said.

But in Massachusetts, there are several barriers to direct cross-selling, including strict rules that bar tellers from offering information regarding insurance products the bank may sell without first being asked by a customer. This has resulted in some creative ideas such as pins or posters with text such as ask me about insurance, to comply with the letter of the law. While this has worked so far, the legality of those efforts has not, as yet, been directly addressed.

Insurance associations have as much history, experience and expertise as similar banking groups, but MBIA members said their group would be a necessary one. Insurance associations are proficient at training but they don’t want us [bankers] in their business, said MBIA Board of Directors member Michael D. O’Neill, who is part of Citizen’s Financial Group. They’ve made that abundantly clear, and so it’s important to have an association that has a bank’s interests at heart.

Additionally, the concept of banks selling insurance brings a unique set of situations to grapple with, O’Neill said. We have two sets of regulators looking at us. We’re a very specialized industry.

The [regulatory] restrictions and limitations placed on banks are more severe, said Kiley. That’s not to say that in the future we might not sit down with other [insurance] organizations to see if there are synergies, said Kiley.

James M. Muse of Beverly National Bank, who also serves on the board of directors for the MBIA, spoke about his experience in deciding what kind of insurance the bank would sell and reiterated the validity of the MBIA’s existence.

There’s an awful lot of people in this audience that aren’t really sure what they’re doing and hopefully came away with [at least] one good piece of information, said Muse.