Wall Street is bullish about the banking industry's ability to make a success out of the insurance business.
Several leading analysts believe the nation's largest banks - which have vast networks of branch offices through which they reach customers - are well-positioned to take market share from competitors.
Analysts have issued a flurry of reports about this emerging business in the three weeks since the U.S. Supreme Court ruled that states must allow national banks to sell insurance from small towns.
"Banks have been gearing up for this ruling, so they're ready to move," said Thomas Hanley, an analyst at UBS Securities Inc. "The floodgates have been opened."
Consultants estimate that banks account for about 1% of the life insurance sold in this country, but Mr. Hanley believes they can boost that share to 20% by the year 2000, equaling their current share of total annuity sales.
Indeed, he and others point to Western Europe, where a less restrictive regulatory environment has allowed banks to capture a sizable share of insurance sales.
Analysts said U.S. banks that are most prepared to exploit this new opportunity include: Citicorp, Chase Manhattan Corp., Norwest Corp., NationsBank Corp., First Union Corp., Wells Fargo & Co., and Barnett Banks Inc. - the successful litigant in the Supreme Court case.
Richard Bove, an analyst at Raymond James & Associates, predicted insurance sales at Barnett will contribute 10% to earnings by 1998. He figures that the Jacksonville-based bank, which has relationships with 40% of the households in Florida, can easily capture 10% of the $20 billion a year in insurance premiums in that state.
In an era when an aging population is demanding savings vehicles such as mutual funds and annuities, banks are reaching out for nontraditional revenue streams. And insurance brings in the highest commissions, analysts said.
The main advantage for banks in selling insurance is they have instant access to a huge base of customers who use them for other services. Unlike, insurance agents, banks don't have to go door-to-door seeking customers. They just tap into a massive customer data base on their computers.
"In a matter of hours they can come up with a list of 10,000 people who need insurance," said Mr. Bove. "And at the press of a button those names are released to all their branches."
That technology will drive down the costs of distributing insurance, luring policyholders who have other business with a bank away from insurance agents because the premiums figure to be cheaper.
Furthermore, banks will share in some of the savings - through increased volume and cheaper costs - that underwriters are likely to derive from marketing through large banks instead of independent agents. "You'll find the major life and casualty companies will probably cut revenue sharing deals with specific banks," said Mr. Bove.
The high court's ruling prevents states from barring national banks ownership of insurance agencies in towns with populations of less than 5,000. Banks were attempting to use such purchases - permitted by the National Bank Act - as a springboard for insurance sales through their branches.
The decision stems from a lawsuit between Barnett and the state of Florida, which barred the banking company from purchasing an agency in the small town of Belleview.
Despite their optimism, analysts also recognize that banks have yet to prove themselves as marketers of nontraditional bank products.
"There are many services banks have offered for years - credit cards, trust, - in which they have ceded market share to competitors," said Moshe Orenbuch, an analyst at Sanford C. Bernstein & Co. Inc.