Why Some BGAs Are Wooing Banks And B-Ds

Michael White, president of Michael White Associates, LLC, a bank insurance consulting firm based in Radnor, Pa., says the rising BGA activity in banks tracks with the growth of insurance sales in banks. Between 2001 and 2005, for example, insurance compensation to banks (which he terms "brokerage fees") grew by 21.9%. By contrast, fee income from mutual funds and annuity sales grew by only 10.6% in the same period.

For the past 20 years, White adds, banks have been taking a hard look at increasing their non-interest income (such as from insurance and annuity sales). "They want to use it to lower volatility and diversify their revenue streams," he says.

This is attracting the attention of the BGAs. "Given what they do, we should expect the BGAs to search for market opportunities here," White says.

White himself has been consulting with a BGA who wants to enter the bank market.

For the BGAs to be effective in this market, White says, "they need to do more than provide product selection and administration. They also need to provide training and education."

It is true that some bank advisors do have insurance licenses and experience, he says, but a lot of platform reps do not have that background or, if they do, they may only work part-time and so cannot keep up without additional training and support.

"Remember, these are bankers. They don't make their livelihood by selling insurance day in and day out," White says.

Banks will also need the backroom skills of BGA shops, he says. "This will make their lives easier."

In fact, one banker he knows recently "farmed out the insurance and annuity processing, back office, marketing, compliance, supervision and carrier/product selection activities, because the banker wanted to make life easier."

White thinks community and regional banks will be in most need of BGA outsourcing services. "The smaller banks are more sparing, and they need to reduce their line item expenses," he explains.

Meanwhile, bigger banks often keep part or all of these activities in-house, he says.

McAvoy has noticed the same trend. Bigger banks often have the resources to move into insurance themselves, he says, noting that they do this by going directly to insurance companies and setting up fully loaded contracts with full compensation.

There's a trade-off in the big bank direct arrangements, though. For instance, the bank has to do all the backroom work, McAvoy says, and, to earn BGA-level compensation, the bank must deliver BGA-level service to the insurance company and meet certain production requirements. Meanwhile, the insurance company has new a sales channel to service inside the bank.

So, even some big banks are using BGA services, he says.

To be successful in the new markets, though, BGAs have to clearly communicate their advantages, Sorebo maintains.

For instance, the BGAs should point to their superior underwriting capabilities. "This often makes the difference between placing and not placing a case," he says.