Offering insurance products has proven to be a popular first step for local banks trying to transform themselves into financial services companies. Thirty banks have applied to sell insurance in Massachusetts. A dozen of those started the application process after the Gramm-Leach-Bliley financial modernization bill passed last November.

State law allows a bank to buy an insurance agency and retain its name, to set up a separate department within a bank branch to sell insurance or to develop a relationship with several insurance agencies. The majority of banks that have completed the application process have opted to buy an existing insurance agency in their community, gaining an established reputation and a book of business.

Of the 25 state-chartered banks that have begun the application process, 13 have been approved by the Division of Banks and the Division of Insurance. Two mortgage companies have completed the process, Home
Vest Mortgage Corp. in Newton and The Cambridge Mortgage Group in Boston. Five federally chartered banks have been approved at the Division of Insurance: First Federal Savings Bank of America, Family Bank, Bay State Federal Savings Bank, Fleet National Bank and BankBoston.

Five banks have applications pending at the Division of Banks: The Provident Bank, Cambridgeport Bank, Fall River Five Cents Savings Bank, Citizens-Union Savings Bank and Enterprise Bank & Trust Co.

North Adams-based Hoosac Bank bought two agencies and spent $3 million to renovate a former Howard Johnson as an office building, which it named the Williamstown Financial Center. Coakley, Pierpan, Dolan & Collins Insurance Agency sells life insurance, and True North Financial Services sells health and life insurance products. A separate area of the building houses a Hoosac Bank branch. The bank leased space on the second floor of the building to Berkshire Capital Investors, a venture capital firm.

Hoosac completed the second acquisition, of True North, last July. Although the bank has done little to advertise the new services, Chief Executive Officer Thomas W. Kelly said the new branch has gained almost $7.5 million in deposits in the 10 months since it opened.

We were waiting to see what the Gramm-Leach-Bliley Act was going to create, Kelly said. We didn’t want to get into any serious information sharing if that would reverse it. Now we’re looking to do more cross-selling in 2000.

‘Ask Me About Insurance’
Insurance premiums provide revenue stream for banks that have come to rely on fee income and help to diversify their sources of income. The two agencies have proven a good investment for the $232 million-asset Hoosac Bank, Kelly said. In the first two months of 2000, True North Financial Services has done as much business as it did in all of last year, he said.

The insurance products must be sold by licensed agents. The state law requires banks that sell insurance in their branches must do so in physically separate and distinct areas of the bank. Williamstown Financial Center has separate entrances to the bank branch and the insurance agencies, and the businesses are separated by a hallway within the building.

This year the bank will develop a formal referral program, train branch staff about insurance products, consider joint marketing, and determine if it can consolidate the companies’ back office operations, Kelly said.

We really bought a major presence in the insurance business in the county, Kelly said. They were well-run enough we didn’t have to bother them very much after we bought them.

Stoneham Savings Bank announced plans to acquire two insurance agencies last summer but has only completed the purchase of one, the Robert F. O’Neil Insurance Agency. The $205 million-asset bank displays brochures about the insurance products in its branches and refers interested customers to the agency.

Banks have to be careful how they promote insurance products, because consumer protections in the law prohibit the tying of products, such as requiring a homebuyer to buy home insurance through the bank to be approved for a mortgage.

We really can’t sell insurance at the bank, said Stoneham Savings President Joseph C. Cioni. We can wear a button saying ‘Ask me about insurance,’ but we can’t bring it up.

Cioni said it is too early to tell how much the agency will add to the bank’s bottom line, but said if the bank did nothing to promote the agency it would still contribute to the bank’s profitability. The bank is interested in buying other agencies and merging them into the O’Neil agency, he said.

It’s become another new part of the bank, Cioni said. It fulfills the whole tone of the industry today. With the passing of the Gramm-Leach-Bliley Act, we’ll see more of that type of merger from industry to industry.

Westfield-based Woronoco Savings Bank followed the same path, acquiring the Agan Insurance Agency in January. The agency, a wholly owned subsidiary of the $442 million-asset bank, offers property and casualty insurance to retail and commercial customers. The agency has annual premiums of approximately $3 million. The agency operates from a separate office, and the bank is examining ways of selling insurance products, including through the bank’s Web site, said Chief Executive Officer Cornelius Mahoney. The bank may also install an ATM at the insurance agency’s office.

We’re working to integrate these products into the bank and the bank products into the agency, Mahoney said. We intend to continue to grow this business through a possible acquisition and new business.

Among the other banks that have bought agencies are Peoples Heritage Financial Group and USTrust, which has been acquired by Citizens Bank. USTrust acquired Brewer & Lord, which has nine offices in Eastern Massachusetts. Citizens Bank also applied to sell insurance before it bought USTrust. A Citizens Bank spokesman said the bank is still developing its insurance strategy and has not decided how it will market the products to Citizens customers.

Portland, Maine-based Peoples Heritage bought two Massachusetts insurance agencies, Catalano Insurance Agency in Methuen and A. D. Davis agency in Conway. The bank attributed the growth in its non-interest income last year to a 56 percent increase in insurance commissions.

Starting From Scratch
Banks that don’t want to spend as much money as an acquisition have turned to third parties to sell insurance or started an agency on their own.

Middlesex Savings Bank opened its own agency, Weathervane Insurance Agency, on March 1. The Natick-based institution is the second largest mutual bank in the state, with assets of $2 billion and 19 branches.

We wanted to create really our own model of how we wanted to do business, said President A. James Lavoie.

The bank will consider purchasing other agencies to increase business, Lavoie said. Weathervane offers life, property and casualty, and auto insurance. The agency is based in a separate area within the bank’s main office, and the bank hired a manager to run the agency. Eventually the bank may place insurance agents at its other branches.

We got into this because we really feel that we need to be more of a financial services organization, Lavoie said. There’s a number of non-bank competitors getting into traditional bank services, and we really feel we need to broaden our income stream.

Insurance is just the first step for Middlesex Savings. Lavoie said he plans to introduce investment services by May and trust services next year. Although it will take a while to build the businesses and the bank will face plenty of competition, Lavoie believes diversifying the bank’s products will pay off in the long term.

If you sit by the sidelines you’re just going to have people chipping away at your best customers, Lavoie said.

He also hopes to gain customers unsatisfied with the mergers of Fleet Bank and BankBoston, and Citizens Bank and USTrust. To gain those customers Middlesex Savings will have to offer the products they want, he said.

We hope to be a viable alternative, Lavoie said.

A less expensive route is to offer insurance products through third parties. Salem Five Cents Savings Bank works with more than a dozen insurers through its subsidiary, Clippership Financial Services.

Banks See Premium Prospects in Insurance

by Banker & Tradesman time to read: 5 min