Insurance: Banks Mellowing on Property/Casualty Sales

Nationwide Mutual Insurance Co.'s announcement last week that it would start selling property/casualty insurance through banks comes as banks are starting to drop their resistance to auto and homeowners insurance.

"It's a natural fit from the insurance agents' perspective," said Carl Formato, president of Washington Mutual Insurance Services. "We want to create as many relationships with the customer as we can."

Mr. Formato's agency, which is owned by Washington Mutual in Seattle, sells homeowners insurance and plans to test-market auto insurance in the second half of the year. Nationwide, which plans to target banks in the West and Midwest, has not contacted Washington Mutual, Mr. Formato said.

A number of large banks-including BankAmerica Corp., First Union Corp., and First Chicago NBD-have begun to sell property/casualty insurance over the last couple of years. All three offer products from The Hartford.

As banks grow more confident that they can succeed in the insurance business, they are overcoming fears that property/casualty insurance will bring them customer relations headaches.

They had feared losing bank customers because some policyholders may feel they got an unfair settlement on a home or auto claim, said MaryAnn Godbout, an assistant vice president at Conning & Co., a Hartford, Conn.- based insurance research firm.

But the potential is too great to ignore, she said.

"Banks are looking for a new business opportunity," Ms. Godbout said. "I think banks might be more successful selling property/casualty than selling life because everyone needs it."

For 1996, banks' sales of property/casualty insurance accounted for less than 1% of the $271 billion market, compared with about 3% of the $10 billion market for life insurance, according to Kenneth Kehrer Associates, Princeton, N.J.

Mr. Kehrer said he was not concerned about the "disgruntled customer" dilemma and predicted that customers would be able to distinguish the underwriters from the bank.

Washington Mutual's homeowners insurance program, which generates $20 million in premiums a year, has gone smoothly, he said.

William Browning, president of Huntington Insurance Services, said he is confident the agency can manage the risk of unhappy customers resenting its parent company, Huntington Bancshares in Columbus, Ohio.

Huntington plans to roll out auto and homeowners insurance to its Ohio customers in March in a partnership with American International Group.

"We are certainly doing our best to see that the carriers we represent are quality carriers who do the proper underwriting and risk selection and therefore we minimize that risk," Mr. Browning said.

Bank property/casualty programs usually involve banks making lists of clients available to underwriters, who contact the clients with the bank's endorsement.

Richard Crabtree, Nationwide's president, said the company would also consider platform sales and creating proprietary property/ casualty products for banks.

The effort to line up banks will be in high gear by the fourth quarter, he said, when upgraded technology is in place to handle additional direct business.

Mr. Crabtree declined to say which banks his company would try to enlist in its effort, which also includes trying to bolster sales over the telephone.

Nationwide denies it, but some industry experts see the bank and phone initiatives as an effort to increase profit margins, which have been declining as competition whittles down commissions.

"There is a continuing recognition that given the competitive pressure involved in property/casualty, there just isn't enough commission in the product to be very successful selling face-to-face through agents," said Mr. Kehrer.

Because of mounting competition, property/casualty commissions have declined from 20% of the premium amount to about 12% or 15%, he said.

Banks working with carriers on a direct-response program might get a 5% or 6% cut of the premium amount, he said.

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