Banks seeking to get into the insurance business usually form alliances with insurance agencies or buy them outright.
IberiaBank of New Iberia, La., however, has gotten its feet wet in insurance by putting together a joint venture agency, IberiaBank Insurance Services LLC, with Burch, Marcus, Pool, Krupp, Daniel & Babineaux, Inc., a Lafayette insurance agency.
The venture was launched Jan. 11. IberiaBank, a subsidiary of $1.4 billion-asset IberiaBank Corp., owns 51%. Burch Marcus, a 16-year-old multiline agency that sells over $50 million of premiums each year, owns the remaining 49%.
"This is a fairly low-risk proposition," said Daryl G. Byrd, the bank's president and chief executive officer. The venture allows the bank to start selling insurance with of agents who "have very deep backgrounds in the business" without the large financial outlay of buying an agency, he said.
Donald P. Lee, manager of IberiaBank Insurance Services, said the bank thought it was "large enough to get into the business in a more significant way, but we didn't want to buy an agency on the first day." IberiaBank's management had seen how other banking companies that bought agencies sometimes had problems running the business because of their inexperience with insurance, he said.
IberiaBank could have simply created an alliance with the agency to refer business, instead of forming a separate entity, but the bank wanted to have at least part ownership of the book of business, Mr. Lee said.
"We'll be building equity in a real live business" while the bank's employees learn about insurance and cross-selling, he said. The joint venture might expand and hire its own dedicated agents at some future date, he said.
"One of the things that's attractive about staring the business in this fashion is we don't have to create a huge staff and more bricks and mortar," he said.
The joint venture has two employees: Mr. Lee and an administrative worker. Bankers and tellers in IberiaBank's 42 branches will refer business to the venture, which will operate out of Burch, Marcus' headquarters.
Burch, Marcus agents will act as IberiaBank agents on the business referred from the bank. The referred customers and any additional revenues will belong to the joint venture, Mr. Lee said.
Agents are paid the same commission for referred sales of personal lines, but a lower commission for commercial lines, he said.
IberiaBank Insurance intends to sell all of the insurance lines Burch, Marcus agents handle, including personal lines like auto, homeowners, life and health insurance, and commercial lines such as property casualty products, he said.
Bank employees will be able to refer customers to the agency, and in some cases, the commercial bankers may introduce agents to clients personally, he said.
IberiaBank executives would not disclose sales projections for the agency. The bank is educating its employees on how to handle referrals, and an incentive system for them is being developed, Mr. Lee said.
Mr. Byrd said IberiaBank is "a large enough bank, and a sophisticated enough company, to be able to enter into this kind of joint venture." But at the same time, the bank is not so large that the executives anticipate problems cross-selling products.
Carmen Effron, president of C.F. Effron Co. in Westport, Conn., said joint ventures can be an inexpensive way to get into the insurance business, but they can also cause problems if they are not structured well. "It's almost as complicated to do a joint venture as it is to do an acquisition - the only difference is there's no cash up front."
The main concerns for a joint venture revolve around ownership of clients, she said. For example, if someone is a client of both Burch, Marcus and IberiaBank and needs new insurance, someone must decide if the client belongs to Burch, Marcus, or IberiaBank Insurance Services, she said.
Such problems can be prevented, but only "if you're really clear about it in the beginning," Ms. Effron said.
Still, these ventures can be a great way for banks and insurance agencies to learn how to work together, she said. The bank gets to begin the process of selling insurance without the huge financial outlay of buying an agency, she said.
Mr. Lee said IberiaBank and Burch, Marcus discussed potential pitfalls of their partnership extensively before forming the venture, including the sanctity of existing client lists. However, he stressed that the most important part of the agreement is that it must truly be a joint venture.
IberiaBank and Burch, Marcus should strive to look out for each other's best interests, he said.