Banks Achieved A Record Amount Of Insurance Fee Income in 2002
By Michael D. White
Banks achieved a number of insurance records in 2002. Among the most important: For the first time, most U.S. banks sold insurance.
Of 8,380 commercial and federally insured savings banks, 4,359 or 52% earned insurance commissions and fee income. These organizations earned a record $3.49 billion in insurance income, up $500 million or 17.3% from $2.98 billion in 2001, according to bank data compiled and analyzed in "Michael Whites Bank Insurance and Investment Fee Income Report" 2002, year-end edition.
The study shows that the largest banks–those over $10 billion in assets–had the highest rate of participation (78.2%) in insurance and produced $2.58 billion or 73.7% of the banking industrys total insurance income.
Collectively, in 2002, these largest banks increased their insurance fee income $803.4 million or 45.3% over their insurance fee income of $1.77 billion in 2001.
Because of their size, this group had the highest mean and median insurance income.
Nearly two-thirds (63.9%) of banks with between $1 billion and $10 billion in assets generated insurance income totaling $572.2 million, down 36.7% from $903.2 million in 2001. The amount represented a 16.4% share of total bank insurance fee income in 2002, down from 30.3% in 2001.
Banks under $1 billion in assets accounted for around $347 million of insurance income, or 9.9% of the industrys total in 2002. This represented an increase of 14.5% over $302.9 million in insurance income in 2001. Of these, banks with less than $300 million in assets generated $193.7 million in insurance income, producing 27% more insurance income than banks between $300 million and $1 billion in assets.
Insurance income for banks under $1 billion in assets constituted a larger average percentage of noninterest income than for banks over $1 billion. Indeed, this ratio (5.36%) for banks under $1 billion in assets was twice that of banks over $1 billion in assets (2.56%).
The smallest banks, those with under $100 million in assets, ranked first in mean (8.26%) and median (3.61%) ratios of insurance income to noninterest income.
In other words, insurance contributed proportionally more to small banks nonlending revenue than to banks of any other size.
In fact, insurance contributed proportionally more to small banks total revenue than to that of most other sized banks. The smallest banks average and median ratios of insurance income to net operating revenue were, at 1.41% and 0.47% respectively, the second highest among all asset classes.
(Net operating revenue, also called total revenue, is the sum of net interest and noninterest incomes.)
Banks between $1 billion and $10 billion in assets had the highest mean insurance income to net operating revenue, at 1.47%. Banks over $10 billion in assets had the highest median insurance income to net operating revenue, with 0.63%.
In 2002, insurance income for banks under $1 billion constituted a mean 1.09% and median 0.39% of net operating revenue. For banks over $1 billion, the mean and median ratios of insurance income to net operating revenue were 1.07% and 0.36%.
Banks in the eastern regions of the country dominated insurance income in 2002. Despite having the highest bank-participation rate (58.2%) in insurance activities, the Midwest region was unable to hold onto its historical first place in insurance fee income.
The Northeast and Southeast passed the Midwest in 2002 by accounting for, respectively, $881 million and $864.5 million of insurance income, or collectively 49.9% of the industrys total.
