Kevin F. Kiley – ‘Emerging market’
Although banks lobbied hard to gain the right to sell insurance, customers aren’t doing business with bank-owned insurance companies, according to a recent nationwide poll.
Experts say banks in the United States may have earned the trust of customers, but luring them away from the equally trusted insurance industry may prove a formidable challenge.
“Clearly, it’s an emerging market. It will take some time to develop … In Massachusetts, [we have] a well-entrenched independent insurance agent community and very strong insurance companies in this area,” said Kevin F. Kiley, executive vice president and chief operating officer of the Massachusetts Bankers Association.
Prior to 1998, state-chartered banks in the Bay State were not allowed to sell insurance. In May 1998, the laws were changed and the state’s Division of Banks shortly thereafter promulgated regulations permitting insurance sales by banks with state charters. The regulations became effective August 1998.
Currently, banks must submit a plan for approval by the commissioner of banks before beginning sales. But even so, there are prohibitions placed on banks that industry insiders say hurt not only banks but the very consumers they were designed to protect by limiting choice within the market.
According to Steven L. Antonakes, senior deputy commissioner of the Division of Banks, bank employees who are not licensed as agents cannot refer a consumer to a bank-owned or affiliated insurance agency unless the customer initiates the inquiry.
Banks nevertheless have sought creative ways to overcome this obstacle, such as Boston-based Eastern Bank asking its employees to wear stop sign-shaped stickers reading “Auto Insurance?”
According to Antonakes, the ways in which banks market their insurance products without bumping up against the prohibition has recently come to the division’s attention. While not referring specifically to any bank, Antonakes said the issue “remains under review at this time.”
“Massachusetts has more stringent restrictions than other states. I think it has had a more negative impact overall in the insurance sales area,” said Kiley.
David Galvin, senior vice president of First Federal Insurance Agency LLC in Swansea, said the prohibitions make it very difficult to sell insurance to bank customers. “Through general advertising and display racks and mass marketing techniques you want to make customers aware of it and get them to ask,” he said. First Federal’s insurance sales are have been brisk, Galvin said, but the success is largely due to the existing customer base the insurance company had before it was acquired by a bank.
First Federal is a subsidiary of the bank holding company FirstFed American Bancorp in Swansea, which is the parent company of Fall River-based First Federal Savings Bank of America.
Fifty state-chartered banks are permitted to sell insurance in Massachusetts, according to the Division of Banks. But that number is destined to grow, said Kiley and Thomas W. Kelly, chairman of the board for Hoosac Bank in North Adams, the property/casualty insurance agency Coakley, Pierpan, Dolan & Collins in North Adams, True North Financial Services in North Adams and its subsidiary, True North Insurance Agency.
“If you look at the success they’ve had in Europe, you’ll find that the numbers are much higher than what’s being experienced in the United States. It’s an indication that this is going to take some time for the cultures to get blended,” said Kelly.
According to the American Banker/Gallup 2001 Consumer Survey, a little more than half of those polled said their banks offered insurance but only 14 percent said they bought life insurance from a bank; 11 percent bought property/casualty insurance and only 9 percent purchased annuities.
Mark Primeau, senior vice president at the $3.4 billion-asset Eastern Bank, which has an affiliation with Allied American Insurance in Wakefield, agreed that selling insurance to bank customers is challenging.
“It’s difficult to get customers to buy insurance. We’re seeing some modest success but it is very modest and, generally speaking, customers aren’t oriented toward buying insurance products from banks. The big exception to that is annuities and some types of life insurance that we are doing very, very well at. We sell a lot of annuities and a lot of savings bank life insurance and other life insurance products. Property/casualty insurance is very difficult.”
According to Kiley, state-chartered banks sell insurance in one of four ways. The first is for banks to start their own agencies and build from the ground up. Only two or three of the 50 banks that sell insurance have done it that way, which is the most difficult route, said Kiley. Another way is through acquisition of an already-established company. Banks may also choose to enter into an affiliation with a separately owned entity. The bank agrees to refer clients interested in insurance products to the third-party affiliate and share a potential commission or other form of compensation as part of the sales that result, said Kiley. Lastly, the bank can become a member of a group like Infinex, an independent organization owned by a group of banks, which offers investment and insurance products and is run by the MBA along with the Connecticut Bankers Association. It offers products that are marketed through the member institutions.
In order to generate brisk cross selling, Kelly said banks will have to learn how to blend the two cultures associated with the banking and insurance industries.
“Banks have struggled in this country with the sales culture just for banking products, let alone incorporating insurance products,” said Kelly. His experience with Mellon Bank, lending to Midwest insurance underwriters, has helped him understand the culture. To many insurance people the old adage “time is money” is taken very seriously to the point of abhorring meetings when they could be selling.
A Financial Center
That’s why Kelly thinks he has developed a good solution that ultimately will become the future face of the financial services industry.
“I look at [our company] as being a different type of animal,” said Kelly. In Williamstown the company has opened one building with all its business entities located within, including a bank branch, an insurance agency and an investment company. All the signage has equal placement and the entire building is known as the Williamstown Financial Center. “So people say they’re going to the Williamstown Financial Center. That’s what I wanted them to say. That at least is the best way to go early on while people are comfortable with the people they’re dealing with and the brands they’re dealing with,” he said, rather than immediately changing well-known company names when acquired. Deposits, investment services and insurance sales are all doing well at the location, he said.
There are a variety of reasons banks may decide to enter into the insurance arena, said Kiley. The foremost may be a desire to fulfill what is likely be the destiny of those financial services institutions that survive: providing the customer one-stop shopping, much like Kelly’s financial center. But Kelly said while it has worked out for his company, there was another motivating factor.
Berkshire County is not a high-growth area, he explained. That fact, coupled with the general decline in loan and profit margin banks have experienced for the last several years despite a recent increase in refinancing due to lower interest rates, means the prospects for growth can look pretty bleak.
“If you don’t have a new population coming in and if you have margins shrinking on the market you already have, then you have to sell more stuff to the same people. That’s the simple logic behind it,” said Kelly.
“There aren’t that many cards to play in this financial services industry,” he said.
Kelly said the decision was made easier by the strength of the insurance firm his company acquired. Coakley, Pierpan, Dolan & Collins had a dominant share of the market at the time of the deal. Additionally, the agency’s portfolio was about 70 percent commercial insurance and 30 percent personal. “That also gives us a nice entry into the commercial lending industry. Commercial lending is generally more profitable than some other lending,” he said.
The national poll also found that when consumers do purchase insurance from banks, very few actually purchase it from what’s considered their primary bank. Only 3 percent purchased annuities from their primary bank, 4 percent purchased life insurance and 3 percent purchased property/casualty insurance from their bank.
Kiley said that problem would be solved with time. “Based on this history in Massachusetts, the largest banks are the first institutions to take advantage of the use of some of these new powers … They’re out advertising, they’re out promoting the availability of product.” As a result, consumers who are interested in buying insurance often see those advertisements rather than the marketing efforts of their own community banks.
While they slowly enter the market, banks may soon be forced to deal with increased local competition. Although credit unions are not currently allowed to sell insurance, a bill pending on Beacon Hill would lift that prohibition.
