Bank of America Corp. has changed its tune about commercial insurance since its FleetBoston Financial Corp. deal brought it a $114 million-revenue insurance unit with commercial lines operations in six states.
“Absolutely the Fleet acquisition afforded us some capabilities that we didn’t have before,” said Belva W. Greenage, consumer insurance group executive at Bank of America.
The Charlotte banking giant formerly focused on other aspects of insurance sales, including personal lines property/casualty, debt cancellation, and life products for high-net-worth and mass-affluent customers, she said. Having achieved success in those areas, it can look beyond to newer opportunities — like the one presented by the former Fleet commercial agency operation.
But with Fleet’s operations, both insurance and banking, concentrated in the Northeast and Bank of America stretching through 30 states from coast to coast, the big question is: “How do you take this national?” acknowledged Stephen DeSalvo, commercial insurance services executive at Bank of America and a former Fleet executive.
Though he noted that, technically, his brokers are licensed to do business throughout the country, “on a practical level it would require building out” to fill in more of the parent’s footprint. For most banks in commercial insurance that has meant acquisitions.
“An acquisition is not out of the question,” Ms. Greenage said, “but we’ve really got to look at it as the right thing for our customers and shareholders.” Still, “we see the opportunity that is here … we’ve got the platform with the Fleet business on which to build.” The Fleet deal “put us in a position to leverage some knowledge and learning about that space and really helped us articulate a growth platform around that,” she said.
In an interview last summer, Ms. Greenage had indicated that, unlike many competitors, Bank of America was not getting into the commercial lines marketplace or planning to buy an agency anytime soon.
“In all honesty we haven’t really assessed the potential of that market in the context of our strategy,” Ms. Greenage said last August. (At that time she was Belva Wallace.) “What we want is to find the opportunities to meet the financial needs of our customers.”
Though she acknowledged that, “obviously, other people in the industry have made [the commercial lines strategy] work,” she added, “we’ve got a base of about 30 million households and two million small-business customers. We obviously went where we thought we had the largest mass of customers and the set of customers with unmet needs.”
At some point, she said then, Bank of America would probably consider entering commercial insurance but for now was focused on the financial planning channel. “We really view that as the vehicle and the conduit for growing the insurance business in Bank of America,” she said.
However, even before the Fleet deal, Bank of America was talking about what opportunities might lie in the commercial insurance arena, Ms. Wallace said this month.
Bank of America bought Fleet in April for $47 billion. The combination created the nation’s largest consumer bank measured by deposits, with 5,700 branches from New England to Florida and California.
Based on 2003 U.S. commercial revenue of $70.3 million, as reported by Business Insurance magazine, Fleet Insurance Services was the 29th-largest insurance agency in the country. Among the bank-owned agencies on the list, Fleet was seventh-largest.
Overall, Fleet had insurance revenues of $114 million in 2003, according to data compiled by the American Bankers Insurance Association, a total that includes life insurance and annuities sold through the insurance unit. Bank of America reported revenues of $150.9 million.
Mr. DeSalvo said that Bank of America presents a potential market of about 80,000 commercial clients for the agency, which generally targets clients with $5 million to $500 million of revenue. “For commercial insurance, that’s a big market,” he said.
But the sheer “breadth of the franchise” means that the agency will need to evaluate carefully what it pursues first.
Right now, “as it relates to our end clients, we continue to work within the legacy Fleet footprint,” Mr. DeSalvo said. At the same time, “we’ve been working very actively and cooperatively with Belva and her team on understanding what are the best practices that we can learn from each other.”
Both sides of the insurance operation have resources in risk and compliance, he said, which provides some synergies.
The former Fleet agency operations are in New Jersey, Pennsylvania, New York, Connecticut, Rhode Island, and Massachusetts. The agency was built upon the foundation created by Summit Bancorp of Princeton, N.J., which Fleet bought in March 2001.
Fleet’s long experience with cross-selling commercial lines insurance is a skill it can bring to Bank of America beyond the states where it now operates, Mr. DeSalvo said. Fleet had substantial cross-selling success, compared with the anecdotal evidence from its peers, and unlike many of its peers is willing to share details.
“In recent years approximately one-third of the new business we write comes from bank referrals, even though we’re not yet fully staffed across all the legacy Fleet footprint,” Mr. DeSalvo said. Another one-third came from other internal referrals, such as from the employee benefits practice, he said, and the remaining one-third was self-produced.
“It’s a very healthy mix,” he said.
Industry observers agreed.
James Campbell, a senior vice president at Reagan Consulting in Atlanta, said that Fleet had a good reputation for cross-selling and is “a nice-sized, quality operation.”
He said it is no surprise that B of A is changing its tune about commercial lines insurance now that it has Fleet. “It’s one thing to not be in the property/casualty distribution business and to contemplate being in it. But to find yourself suddenly in it with a high-quality operation, you would expect that perspective to change.”
Mr. Campbell said that, though the new Bank of America may eventually need agency acquisitions in order to expand its commercial lines business, it does not need them to be successful in the short term. “You look at a situation like that, and in the relatively near term you’re not going to have full coverage of their footprint short of a stunning, high-profile acquisition of a national broker.”
Though “if there is a list of banks that might do something like that, they’re certainly on it,” he said, a major deal is unnecessary right away. Fleet has a good operation with a strong history, and B of A could build on that gradually, perhaps doing smaller deals in key markets, he said.
“If you are going to acquire every place you have a banking operation, that is a rather daunting strategy,” Mr. Campbell said. “If you have something that’s working and is successful and is scalable, maybe you just start to build slowly and don’t overwhelm yourself with ‘how do you roll this throughout our footprint?’ “
However, John Wepler, an executive vice president at Marsh, Berry & Co. in Concord, Ohio, said the coming soft market in commercial lines insurance means that bank-owned agencies like the former Fleet’s will need to do deals so they can maintain the growth rates their bank parents learned to expect during the recent hard market.
Bank of America needs to develop a very specific strategy about what its growth goals are for the agency, Mr. Wepler said. “It’s got to be very challenging to schedule out their geographic acquisition plans over the long term. You don’t want to just make a couple of acquisitions; it has to be part of a strategy.”
Despite its long focus on personal lines, he said, “Bank of America probably always wanted to get into the commercial business. But it requires having the right partner. And now they have the right partner.”
But even banks that have been successful cross-sellers, like Fleet, “haven’t had any meaningful impact on wallet share,” Mr. Wepler contended. Though Fleet was probably way ahead of the pack if “one-third of their insurance business comes from bank customers, … they’ve got a long way to go until a third of their bank customers put their insurance through the bank’s insurance department.”
Developing that level of penetration requires a multipronged strategy, Mr. Wepler said, which banks that focused on getting into the commercial side of the business are only beginning to realize.
The commercial agencies owned by banks have done well, and have justified their purchase, but they have not yet answered the question: “How are we going to provide an insurance solution to our entire core customer base, which predominantly represents personal lines and small commercial?” he said.
This is where Bank of America has a clear edge, since it built its mass-market insurance business first, Mr. Wepler said. “I would say they are ahead of the curve because that’s the strategy that they’ve had since the inception of their insurance opportunity … and if B of A is good at one thing, that is serving a large number of customers.”
On the consumer side Bank of America continues to pursue its extensive retail client base — nearly 33 million customers, including those acquired with Fleet — by offering life insurance to high-net-worth clients through about one-quarter of the 1,300 financial advisers in Bank of America Investments.
The company also offers term life insurance to retail customers, and Ms. Greenage said B of A’s life insurance revenue grew 68% in 2003.
And it continues to target mortgage customers with property/casualty products like homeowners insurance, she said; the debt cancellation product is geared to credit card and mortgage customers. “What that sets up is a business model that really focuses on the most logical sets of customers and the solution set that really fits into the customer’s needs,” she said. By targeting customers at a point when they are, for example, choosing a mortgage, “we’ve tackled the most obvious choices that customer has to make.”
The personal property/casualty operation is “a very new business,” she said, “and the numbers aren’t very big.” But the early reports tracking customer satisfaction with getting these products through B of A are very strong. Right now the agency the bank started in Richmond, Va., in May 2003 is offering p/c insurance in 11 states and the District of Columbia, and it is on track to double the states by yearend.
Ms. Greenage added that, besides its well-known insurance agency, Fleet brought insurance sales capabilities that include debt cancellation products for credit cards. Fleet’s “very strong experience in the debt cancellation for credit card customers” complements Bank of America’s strength in selling a similar product to mortgage customers, she said.
The company wants to balance its consumer and commercial lines insurance businesses, she said. “We think we’ve got to have both those businesses … to really become the full-service provider of products through as many channels as make sense.”
