As bank after bank pushes into the insurance business-buying an agency, rolling out a proprietary annuity, signing on a new underwriter-it is easy to lose sight of a countertrend.
Some banks are deemphasizing insurance operations or dropping out of the game altogether.
In September, Washington Mutual Inc. announced an agreement to sell its life insurance subsidiary, which manufactures, sells, and manages variable and fixed annuities.
Six weeks later, Fleet Financial Group said it would close its insurance sales unit and integrate the business into its retail bank. It said it would drop all its insurance carriers but one-Travelers Group.
These bigger institutions are not alone. Elmira Savings Bank in Elmira, N.Y., announced the sale of its insurance agency this month.
The banks were disappointed in their insurance businesses' profit levels.
And industry watchers predict more banks will pull back from insurance for the same reason.
"It's not a given that banks are going to be able to succeed," said Maryanne Godbout, an insurance consultant at Conning & Co., Hartford, Conn.
Most observers agree that the larger banks are more likely to thrive in the volume-driven insurance business.
"You do need economies of scale," said John Brugler, president and chief executive officer of Elmira Savings.
He said competitive pressures forced the thrift to cut its commission rate, which had pinched profits. The bank was also hampered by state laws that restrict cross-selling.
"When we bought the agency (in 1984), the previous administration thought state law was going to change," Mr. Brugler said. "It did not."
Elmira Savings left the business for good. Washington Mutual and Fleet will stay in, but in a scaled-back fashion that lowers overhead.
Wamu's WM Life Insurance Co. failed to generate the 15% to 18% return on equity the parent expects of its business units, said Craig S. Davis, executive vice president for lending and financial services.
Banks will probably continue to tinker with their insurance programs to make them as profitable as possible, Mr. Davis said. "I don't think anyone has demonstrated they have the magic formula."
The banking industry's road into insurance was smoothed by recent court decisions that expanded banks' ability to sell annuities and let them sell insurance over wider geographical areas.
Now that many banks have climbed on the bandwagon, Ms. Godbout warned they may be in for a surprise.
"Insurance products are very different from any other type of product a bank sells," she said. "For example, with life insurance, you have to work at selling it. Most people don't want to buy it. It requires multiple contacts."
Ultimately, the banks that remain in the insurance business will be those willing to look beyond short-term hurdles, she said. "Quick profit expectations won't hold true."
