A new delivery model promises low-cost-investment entry into retail insurance
By William Atkinson
Retail insurance has long provided an opportunity for community banks to diversify their product lines and revenue streams, and generally become broader financial service providers in their communities. However, profitably developing an insurance agency has usually been a costly proposition.
Now, one company, Insuritas Inc. of East Windsor, Conn., sets up another option, offering an outsourced turnkey insurance agency model. “We provide an ‘insurance agency aisle in the stores of banks,’ ” says Jeffrey Chesky, president and CEO. “It’s not a physical aisle, but we help banks focus on insurance with the same intensity they do with deposit gathering and loan making.
“Our model is based on the understanding that 100 percent of the bank’s customers buy insurance every year.”
The Insuritas program allows a bank to direct its customers to third-party insurance agents selling various insurance policies. The agents are available to consumers by telephone and an online service portal. And the program’s insurance products, marketing and communications are tailored with each participating bank’s name and brand. The bank customer can connect to the agency using an internal extension on the bank’s phone system, through the bank’s online banking portal, email or online chat.
The online chat communication channel includes video chat enabled by services such as Skype. The latest online video feed is Apple’s “Face Time” application. “There are currently about a dozen options,” Chesky says.
A better way
Tapping retail insurance fee income presents an opportunity for all community banks, Chesky says. He points out that community banks create insurance needs every day while approving consumer and business loans. And more community banks without retail insurance operations are realizing that providing insurance supports their commitment to the loan process.
Community banks interested in providing their customers with retail insurance offerings have traditionally had two alternatives. One was to purchase an existing agency with experienced agents and a current book of customers and connections. A second was to build an agency from scratch, which requires finding the expertise and then steadily building a book of business.
Either option, according to Chesky, can require an up-front investment of a couple of million dollars. Community banks have long had both various successes and failures with those models.
However, the third alternative is the third-party service arrangement that Insuritas provides, wherein revenues and commissions on insurance policies generated are shared with an existing agency. Insuritas offers banks the opportunity to sell virtually all lines of insurance, including auto, homeowners, business/commercial, life and health. Of course, the easiest entry points for banks are auto, home and business/commercial insurance policies that dovetail easily with their lending activities.
“These are the products that banks require customers to purchase before any loan transactions can be completed,” Chesky says.
Insuritas says it can have a bank’s agency program running in 90 days; that’s when interested customers at the bank can connect with an Insuritas agent through a toll-free telephone or an interactive online portal. “As soon as the customer is on the agency pages, we invite them to ‘click to chat’ with an agent,” Chesky explains.
Return on investment
For the 27 community banks it serves nationally, Insuritas has found that about 40 percent of customers to whom it provides quotes will buy insurance from the bank’s agency. “Part of this is because of price,” he says. “The other part is because the bank has brand equity that is significantly more meaningful to the household than [that of] any local insurance agent or agency.”
According to Chesky, a bank’s capital investment in its insurance program is amortized, and its return on investment is usually in the 25 to 35 percent range. The capitalization cost for a financial institution with assets under $500 million is typically under $100,000, Chesky says. There are no other startup fees or initial costs to the institution.
“In terms of the return on investment, the bank will start generating a return on its capital in the first year, and the ROI will increase substantially over the mid-term, since insurance commissions annuitize, driving rapid fee income growth,” Chesky says. “The ROI over the first three years is in the 25 percent to 35 percent range, and increases to over 40 percent in the out years.”
In addition, because fee income from insurance annuitizes through the Insuritas program, participating banks get paid every year, since they are set up as the agent of record for their customers’ policies. “This allows the bank to build hundreds of thousands of dollars in fee income over a four- or five-year period from new and existing policies,” Chesky says.
Chesky says remote access to insurance agents isn’t generally a hindrance or concern to consumers. These days, he says, fewer consumers want to sit down for face-to-face discussions with financial providers, whether they are insurance agents, brokers or bankers.
Custom brand extension
First Security Bank in Batesville, Miss., has used the Insuritas program for almost seven years. The bank has total assets of $500 million, and its trust department has another $250 million in assets. “We began when the bank wanted to get into the insurance business on the property and casualty side,” says Thad Campbell, the bank’s investment analyst and assistant trust officer, who also manages its retail insurance program with Insuritas.
“We looked at having an in-house agency or purchasing an agency,” Campbell says. “However, because of the capital required in the first two options, we went with Insuritas.”
To set up its insurance program, First Security Bank had to prepare for various Insuritas workflows, provide employees with sales training and help develop bank-branded marketing materials and a Web portal. “Any time our customers call an Insuritas agent, the agent answers, ‘First Security Insurance,’ not ‘Insuritas,’ so we can maintain our brand.”
To generate daily and weekly sales, First Security Bank tells consumers about the insurance products it has available generally for two situations. One situation is when a credit transaction takes place, such as approving an auto loan or home mortgage—just when a customer might have a related need for insurance. The second situation happens informally, typically during conversations customers have with the bank’s tellers and customer service representatives.
“We have information on the insurance program sitting on their desks and teller windows,” Campbell explains. “If a customer asks for a quote, the employee can go to his desktop, fill out a referral form, submit it, and then an agent from Insuritas will contact the customer.”
The customer’s initial contact by the agent is usually made by phone, although sometimes by email if the customer prefers. After that, most correspondence with the customer usually takes place via email.
Currently, 95 percent of First Security Bank’s insurance book comprises auto and home policies. However, the bank also sells some commercial policies (which includes business automobile, directors and officers, errors and omissions, general liability, property, umbrella protection and workers compensation). Recently, the bank has made efforts to sell life and dental insurance as well. Other insurance coverages offered by the bank include identify theft, legal, renters, pet, vision, health and even a wedding protection plan.
First Security closes on about 35 percent of all of the policies it quotes. Over the years, the bank has increased the total value of its premiums as it has added new accounts. Currently, the bank has about $600,000 in premiums. Campbell estimates that the bank’s commissions average about 13 percent on the premiums (although commissions for each policy are different, and first year commissions are a bit higher than renewal commissions), which means the bank currently earns about $80,000 a year in commissions through the program.
“Of course, our responsibility is to make sure we generate as many referrals as possible,” Campbell says. “The more referrals we make, the more quotes that result and the more policies we are going to sell.”
Campbell serves as the internal proponent of the insurance program for First Security Bank. “This takes about 10 percent of my time, with the rest of my time being spent in the trust department,” he estimates. On the plus side, though, according to Campbell, the program manager doesn’t need to be an insurance expert.
“After the program gets started, it tends to run on its own,” he says.
William Atkinson is a writer in Carterville, Ill.