Creating Successful Agent-Bank Alliances
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Its a long and imposing process for banks to learn how to sell insurance, and thats where many opportunities for agents come in.
Short of buying an agency outright or setting up their own agency, banks often seek to partner with established producers who know life and health insurance, annuities, employee benefits and related products that can add to the banks fee-based income.
Experts say, however, that many of these alliances have flopped because they got off to a bad start or ultimately sputtered due to a failure to understand each others business.
If it is to work, even an informal alliance must start off with a thorough discussion between agency and bank, the experts note.
"You have to be able to work with the bank and come up with a game plan as to what your roles are and what your commitment and theirs are," says Valerie Jordan, principal of Jordan & Jordan Associates, a consulting firm in Belchertown, Mass. "Otherwise, it is doomed to failure."
Experts note, too, that banks are fearful an outside agent might fumble away the customers trust.
"The agency will view the bank as a lead-generation source. But its not exclusive to the agencys business; its just one source among others," observes Robert V. Wick, head of R. V. W. Consulting, Davidson, N.C. "Whereas if Im an employee of the bank, the bank sees me as a partner."
James Campbell, a principal at Reagan Consulting, Atlanta, says joint ventures and other formal alliances with banks have not generally worked, and many are dissolved after a relatively short life.
But Campbell reports a developing new approach for bank-agency alliances that is currently being discussed by one or two banks and local agencies, which he declines to identify, in the South.
The proposed alliances would take the form of a limited partnership established jointly by a bank and an agency that offers commercial lines, but also employee benefits, as well as some life and health insurance and annuities.
The bank would front most of the money required, but the partnership would be owned 50-50 by bank and agency, says Campbell. The agency would commit a few employees and a great deal of know-how to the venture.
Ultimately, the new agency would probably expand through acquiring other agencies, Campbell explains.
"Its a separate business that the bank and the agency can build and manage," he says. "Its an arrangement that offers some promise and potential. Its a little different than, Hey, lets market insurance together. Thats too easy to put on the back burner."
Campbell points out that in a typical insurance marketing alliance, the agency winds up essentially creating two classes of business: policies sold internally and those sold through the bank. Because business sold through the bank requires the agency to split commissions, that business can be given short shrift.
Under the proposed LLC format, the partnership would pay compensation expenses, rather than the original agency, Campbell says.
In addition to most of the capital, the bank would bring cross-selling opportunities to the partnership and facilitate meetings between agents and commercial customers, he adds.
Another approach currently growing in use in Connecticut and Virginia is for the state bankers association to create an agency, which then places agents directly in local banks.
"The agents act as third-party marketers," points out Maria Thomson, managing principal of Thomson Management Solutions Inc., Brimfield, Mass. "It works well for smaller banks."
Existing agencies can also partner successfully with banks on a less formal basis to cross-sell a variety of insurance products, but its not easy to set up such an arrangement, she adds.
"It requires a fair amount of gearing up," says Thomson. "You have to think about how the bank is to be compensated. Will they get a percentage of the premium?"
John Wepler, a partner and senior vice president of mergers & acquisitions at Marsh Berry & Company Inc., Painesville, Ohio, thinks most banks that enter into alliances do so because they are not completely ready to make a long-term bet on the insurance business. Often, those banks dont really buy into the business, Wepler says.
"An alliance can be a way of dabbling," says Wepler, "and thats why so seldom do you see cross-referral programs work."
Support from the top is essential if bankers are going to take the need for agency referrals seriously, Wepler observes.
"If the bank CEO says, Refer customers to the agency or well find someone who will, it can work," he says.
But they have to be the right kind of referrals. To be successful with referral programs, banks must first become familiar with an agencys special expertise. If bankers start referring business that the agency cant write, then the partnership wont work, Wepler points out.
Michael White, head of Michael White Associates, Radnor, Pa., says he has worked with Wilson Bank & Trust in Lebanon, Tenn., to develop an insurance program in partnership with independent agency THW Insurance Services, LLC, to offer insurance products right in its main office, with emphasis on health and employee benefit coverage.
"There are some good opportunities, more so for community banks, not so much for big banks," White says.
