Bank One Corp., which had refrained from leaping into the new age of financial holding companies, is entering the insurance underwriting business.

The Chicago banking company tipped its hand this week when it announced the acquisition of Congress Life Insurance Co. An interesting wrinkle is that Bank One plans to confine product offerings to those aimed at its correspondent banks.The company also plans to file as a financial holding company in 2001.

Banc One Insurance Group in Milwaukee plans to start offering Congress Life-branded credit life and disability insurance products underwritten by the correspondent banks in the first quarter, said Glen Milesko, chief executive officer of Banc One Insurance and now president of Congress Life as well.

Until then, Mr. Milesko said, Banc One Insurance officials will examine Congress Life's product filings "to see if they need to be tweaked" and will talk with the correspondent banks to see what types of products they need.

Bank One bought Congress Life from Security Life Insurance Co., in a deal announced Monday. It got Congress Life's licenses and product filings but left the policyholders themselves to Security Life. That means Bank One has a "clean slate," Mr. Milesko said. "We can build a leaner insurance company and pass the savings on to customers."

By buying Congress Life Insurance Co. outright instead of purchasing insurance agencies or starting an underwriting operation from scratch, Banc One has the opportunity "to design products that might be a little different" and to "participate more in the profits," Mr. Milesko said.

There is no concrete plan to sell the products through Bank One branches, but branches eventually may be added to the marketing mix, Mr. Milesko said.

Bank One is one of the few major banks that have insurance units but have not formed a financial services holding company. But it has to create one in order to underwrite other insurance products, and Mr. Milesko said Bank One expects to apply for financial holding company status in early 2001.

"Down the road, when the company is fully functioning, we'll look at reinsuring our own annuity program and maybe even having our own annuity and life insurance products," he said, noting that Congress Life can act as a reinsurer even before its underwriting capacity broadens.

Claims handling and accounting will initially be outsourced or handled on the Web. "With an actuary, a CFO, and a good attorney, we can run this company and do it more efficiently" than the competition, Mr. Milesko said.

Banc One markets proprietary annuities and other insurance products from a variety of vendors through Bank One branches in 14 states. It also owns reinsurance operations as well as a third-party administrator. Mr. Milesko wants to use his company's newfound underwriting capacity to leverage its distribution strength. It also wants to use the Internet for better cost-efficiency.

Carmen F. Effron, president of C.F. Effron Co., a Westport, Conn., consulting firm specializing in banks and insurance, says buying an underwriting business makes sense for larger banks, because "they can put in the effort and time and focus to make it actually work."

Kenneth Kehrer, president of Kenneth Kehrer Associates in Princeton, N.J., was skeptical of Bank One's move. "I think it's interesting that they're starting with their correspondent banks, rather than with their main customers," he said.

Other banks might balk at buying insurance from Bank One when they have so many other options, Mr. Kehrer pointed out.

Mr. Milesko, however, says the correspondent market has plenty of room to grow,

"Many of these banks haven't been involved in insurance," he said.

In Sheshunoff Research's 1999 report on correspondent banks, Bank One was the second-largest correspondent bank holding company, with $3.9 billion of deposits. Bank of America had deposits of just over $5 billion.

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