Banks Moving Full Force Into Insurance, Survey Says

A total of 26 percent of all banks nationwide are selling small business property and casualty lines of insurance and 23 percent plan to do so within the next two years, according to a recent survey. The survey also shows that 22 percent of banks are selling group life and health insurance lines, and another 23 percent plan to do so within the next two years. Surety bonds, which are used mainly in the construction industry, were marketed by 22 percent of the banks and another 20 percent said they planned to market such products within the next two years.

The data are the latest findings released in the annual survey conducted by the Association of Banks-in-Insurance. Reagan Consulting, a market research firm, conducted the study. The surveys were mailed to nearly 2,300 financial institutions nationwide. More than 300 institutions returned completed surveys, for a response rate of 13.1 percent.

In total, the respondents to the 2000 survey represent about 3 percent of all U.S. commercial banks and savings institutions. Within the small business segment, the survey also found that 63 percent of the respondent banks with more than $10 billion in assets said they marketed commercial property/casualty lines of insurance. In the $1 billion to $10 billion segment, 36 percent of the respondent banks said they marketed commercial property/casualty insurance lines.

In the $100 million to $1 billion segment, only 12 percent said they marketed property/casualty lines and in the under-$100 million category only 10 percent said they did so. The primary distribution method for property/casualty insurance continues to be through the acquisition of an agency.

A total of 43 percent of respondents said acquiring an agency was their primary method of distributing insurance to small businesses. A total of 26 percent of the respondents said they used a de novo agency, another 16 percent said they formed joint ventures with insurance agencies to distribute insurance. Another 11 percent said they formed marketing alliances with insurance carriers, 2 percent said they formed alliances with a third party marketer and 2 percent said they marketed property and casualty to small businesses through an in-house securities broker.

Other findings in the annual banks-in-insurance survey include: Bank-insurance premiums grew by 18 percent in 1999; insurance products were sold by 78 percent of respondent banks; general lines (i.e. property/casualty and life/health) products were sold by 48 percent of respondents in 1999, up from 42 percent in 1998. Insurance producers within banks are generally earning slightly less compensation than those within large (greater than $10 million in revenue) independent agencies. Customer services representatives within banks earn slightly more than large agency customer service representatives.

Only 7 percent of respondents said it is “likely” or “very likely” they will assume underwriting risk within the next three years for either property/casualty or life/health insurance products.