A Spark of Opportunity

Finding firecrackers, and avoiding duds, in specialty insurance sales

By William Atkinson

Nearly everyone in community banking these days thinks about generating new revenue and higher profit margins, and exploring new market demand or products or services is a common path taken. Sometimes finding a niche product is the way to go.

Retail insurance is often no different than retail banking, of course. Community banks with insurance agencies also look for new insurance offerings to generate new profit opportunities. High consumer demand, worthwhile profit margins and few overall complications are the combinations that most insurance sales people look for when evaluating potential new specialty insurance sales.

Retail insurance consultant Michael D. White has his own list of specialty insurance products that he considers potential revenue firecrackers and likely duds for community bank insurance programs.

To start with a bang, White, principal of the Michael D. White Associates LLC in Radnor, Pa., identified five potential retail insurance firecrackers.

Disability insurance: “I have always been an advocate of disability insurance,” White says. “These days, though, it seems to be very much neglected. Disability is a material risk for people, and banks should look at offering this coverage.”

There are two primary types of disability insurance: long-term disability and short-term disability. Protection features also differ, with some policies that can’t be cancelled and others that offer guaranteed renewals.

Renters insurance: Renters insurance, like homeowners insurance, covers the policyholder’s possessions as well as injury to other people on the premises. Policies are available in either actual cash value or replacement cost. This is also a much-needed coverage, according to White. “It turns out that a lot of renters don’t have it,” he says. To succeed in building sales and profits from this insurance line, an agency needs to identify a method to segment people who own homes versus those who rent, and then create a defined approach to reach those renters.

Title insurance: This policy protects policyholders against losses arising from problems related to their property titles. “This can also be a very profitable line,” White says. “It suffered during the recession. In fact, it took a pretty big hit, but it seems to be bouncing back, so it is definitely worth considering.”

Motorcycle insurance: This is another insurance coverage holding potential steady sales for community banks, according to White. Similar to auto insurance, motorcycle insurance policies offer liability coverage, collision coverage, comprehensive coverage and uninsured/underinsured motorist coverage.

Pet and pet health insurance: A lot of people would be willing to purchase this kind of coverage if they knew it existed, White says. “A lot of people have pets, and most of them want to make sure that they get the veterinary care that they need,” he says. “However, it can be very expensive if a pet needs this kind of care due to an injury or illness.” Some veterinary bills can be in the thousands of dollars.

To end with a fizzle, White identified seven insurance coverages that he thinks community bank agencies should consider twice and three times before offering. Changes in the retail marketplace, the economy, weather patterns or government regulations are likely to negatively affect the ability of community banks to consistently profit from these lines, he says.

This isn’t to say that no bank insurance firms should ever offer these coverage lines. However, community banks with their own insurance agencies, which tend to be smaller and have more tightly focused product lines than a lot of other agencies, may be better off focusing on other products generally in higher demand that offer the promise of more consistent and stable profits over time, White says.

Health insurance: This line of insurance is extremely complicated, and the federal and state governments’ chaotic implementation of the Affordable Care Act has only made it more so. “There is a huge learning curve involved if you decide to offer this. In most cases, it’s not worth it, unless you decide to specialize in it,” White says.

Boat insurance: This line of insurance is very sensitive to economic cycles, according to White. “When a recession hits, boats are one of the first things people get rid of, so boat insurance is unlikely to be a steady business,” he contends.

Mobile home insurance: “Weather seems to be problematic for mobile homes, so it is difficult to identify the risks that exist,” he says. “This is particularly true in areas that are prone to a lot of tornadoes.”

There are also some specialty lines that, while they may be of interest to some customers, are not likely to generate enough business for community banks to consider selling them. They include these three insurance lines:

Green insurance: While there may be some regions of the country where the local populations are strongly environmentally conscious and are thus building large numbers of green homes and commercial structures, this is rare. “In most places, there really aren’t a lot of homes or commercial buildings that are ‘green’ or have ‘green’ features, so there is unlikely to be much of a market for this coverage,” White says.

Identity theft insurance: On the surface, this coverage might seem very appealing to a lot of customers, because they assume that the insurance will cover their actual losses. However, it does not. It just covers the costs associated with rectifying the problem. “Once people find this out, few of them are interested in it,” White says.

Travel insurance: Certainly, travel insurance is very popular, and a lot of customers are interested in it. However, few of these customers are likely to think of their community banks first when they seek this kind of coverage. “It’s probably not easy to get yourself in an effective point of sale for this, unless your bank also has a travel agency, which is where most people purchase this insurance,” White says.

William Atkinson is a writer in Illinois.