For banks that plan to build their insurance operations with whole- and term-life policies, First of America's strategy to lead with property and casualty insurance may seem unconventional.
After all, the business doesn't offer banks the high commissions of life insurance. Then there's always the risk of damaging an account relationship if a customer's claim is denied.
But executives at the Kalamazoo, Mich., banking company, along with those at several other leading midwestern banking companies, including Norwest Corp. and Comerica, said they believe that property and casualty insurance is the appropriate anchor for their program.
"With property and casualty products, consumers don't decide whether to buy it or not," said William Shauman, executive vice president of trust and the financial services division. "It's not a discretionary decision. But all life products are."
And life insurance has produced slim results for many banks so far. "I've not heard of any resounding success stories," Mr. Shauman said.
Part of the bank's long-term insurance strategy includes aggressive acquisition of independent agencies, a method that first brought the bank into the property and casualty business.
The acquisitions of two property and casualty agencies in the past two years gained two objectives for the company: the proven experience of a working agency and the chance to merge it with the bank's own expertise and established distribution channels.
The bank also started an operation from scratch in Illinois.
While buying an insurance agency lets a bank build sizable sales and earnings right off the bat, the strategy has its pitfalls, according to Kenneth Kehrer, a bank insurance consultant in Princeton, N.J.
Banking companies that used this strategy in the 1980s, he said, got burned whenever the owner of an acquired agency either retired or could not adjust to the banking culture. Either outcome proves just how dependent these businesses are on a single individual, Mr. Kehrer said.
Still, he noted, buying an existing business means "starting at a higher floor of the building."
Mr. Shauman said overall commission revenues were growing at an 18% rate this year compared with 1995. He would not disclose specific revenue figures.
Since the agency acquisitions, First of America has been reaping the benefits of offering insurance that dovetails with its lending relationships. When a customer, for example, takes a mortgage on a new home, he or she buys property and casualty insurance to go along with that purchase.
This connection between lending and insurance is a source of concern for traditional insurance agents who oppose bank involvement in insurance sales. They contend that consumers would feel pressed to buy insurance if they think their ability to get a loan is on the line.
But Mr. Shauman countered that consumers only stand to gain. For example, Mr. Shauman said, First of America's 611 branches offer shopping convenience and the benefit of the bank's customer service.
"Plus as we get larger, we're going to have pricing leverage that single, independent agencies don't have," he said.
But gaining such a pricing advantage depends largely on how successful the bank is at negotiating lower prices among each of some 30 underwriters, also known as carriers.
Mr. Shauman berated insurance carriers for lacking the technological capability need to satisfy bank insurance marketers. "I used to think banks weren't at the leading edge of technology all the time," he said. "But next to insurance carriers, we look like we're in the 22d century."
In February, the bank introduced an automated payroll deduction plan for policyholders, but its convenience will be limited until carriers can handle electronically based information with the same sophistication.
First of America, however, doesn't have to wait on anyone else to flex its marketing muscle, another key advantage in its new business. "We know more about our customers than an agency might," Mr. Shauman said.
Once customers have been identified and segmented, First of America pursues them through direct mail and telemarketing. It also has plans to use the Internet as a marketing tool. "Shauman's got tremendous infrastructure," said Larry Renfro president of Allmerica Financial Institutional Services, Worcester Mass., one of First of America's insurance carriers "He also understands the importance of serving and segmenting customers."
Acknowledging the dangers of hurting existing account relationships, Mr. Shauman said he's ensured that the bank's carriers have reputations for handling claims reliably, especially rejected ones.
Most of the bank's property and casualty volume comes from commercial clients, a market served by a sales staff of 30.
The retail side of the business, accounting for 30% of the bank's property and casualty premiums, is supported by another 30 employees, including customer service representatives. The bank's profits come from commissions on each policy sold.
Standard commission rates in the industry range between 12% and 15%.
Mr. Shauman is recognized for navigating First of America into the now-booming annuities and mutual fund businesses. Just as those businesses boosted branch traffic, Mr. Shauman said, he expects a similar effect from insurance sales, particularly among customers who had stopped coming to the branch.
Meanwhile the bank is gearing up to offer life insurance by early next year. "At the moment, we are pursuing and, in some cases, investigating just about every line of insurance," said Mr. Shauman.
The bank already offers credit life insurance and insurance risk management for corporate clients.
Until recently, First of America's aspirations for its insurance business had been somewhat muted because of legal restrictions. Last year, however, a Michigan law was upheld allowing banks to own insurance agencies, turning back a challenge by the insurance industry.
The laws in other First of America states - Florida, Illinois, and Indiana - are not so accommodating, but the company continues to pursue the business as far as permitted.
Ms. Monahan is a freelance writer based in New York City.