Back in 1990, BB&T Corp.'s insurance business looked like a high-priced flop. But instead of throwing in the towel-as many big banks have done-BB&T forged ahead.

"We just saw the logic of what we were doing, and kept at it," said John A. Allison, BB&T's chairman and chief executive officer. "It's a long cycle."

BB&T Insurance Services, which has agencies in 34 towns throughout the Carolinas and Virginia, and about 450 agents, is now estimated to be one of the nation's 30 biggest agency systems-bank or nonbank.

"Our competitors are not bank-owned companies," said H. Wade Reece, president of BB&T Insurance Services. Instead, they are scores of independent agents and distribution powerhouses Marsh & McLennan Cos., Allstate, and Aon Group.

The subsidiary pulled in $40 million in revenue last year, for a profit of $8 million. It accounts for 7% of bank revenues and 27% of fee income.

But things were not always so bright.

The Raleigh, N.C.-based banking company embarked on its insurance strategy in the 1980s. Looking to cash in on the mid-Atlantic's growing property/casualty market, it bought half a dozen independent agencies over four years.

Unfortunately, it paid too much for the agencies. It couldn't find the right executive to oversee the network. And the insurance carriers' brusque treatment of BB&T customers was causing many to leave the bank altogether.

"We alienated our own employees" who bought insurance through the bank, Mr. Allison said.

But BB&T persevered. It continued buying agencies, quadrupling the size of its agency roster within eight years. It found the right person to head the business. And it persuaded underwriters to treat its customers better.

That stay-the-course approach could hardly be considered a given. More than one bank has pulled back its insurance initiative after finding how challenging the business can be.

In the early and mid-1990s, for instance, Norwest Corp. and First Bank System sold off a number of agencies they had acquired.

But BB&T executives are forging ahead. They vow brisk growth, largely through more acquisitions, and expect insurance revenues to double by 2000. They also project that profit margins will rise to 35% from 20% in five years, which would put net income at $38 million.

Within five to seven years, they see the insurance business contributing 45% of the bank's fee income.

And they plan to have one of the nation's 10 largest agencies within five years.

Analysts say they are impressed with BB&T's insurance efforts so far.

"They're well ahead of the curve in terms of understanding the business and how to make it profitable," said R. Harold Schroeder, an analyst with Keefe Bruyette & Woods.

David M. West, an analyst at Davenport & Co., said that the bank has the power to get favorable arrangements from carriers because of the scale that comes with its large and growing agency network.

"They have the potential to be one of the few banks where an agency system could be of noteworthy success," Mr. West said.

That drive for volume will continue this year as the bank expands its foothold in Virginia, and in 1999 as it strikes out for the Tennessee, Georgia, and Maryland markets.

But BB&T is not content to just build distribution. It plans to enter the lucrative insurance underwriting business, which banks are now barred from but could get into if financial reform is done.

Even if financial reform is not forthcoming, Mr. Allison said, BB&T will look to enter a partnership with an underwriter.

Valerie Jordan, a consultant in Belchertown, Mass., said that developing or buying underwriting capabilities would probably be hard to justify, given the scale of BB&T's business.

"You really have to have a tremendous infrastructure to do that," she said.

The bank might be wise to enter the business through selling reinsurance to carriers, or by easing into it by doing one product at a time, she said.

BB&T executives attribute much of their insurance success to a decision to let the bank's agencies keep their names, their executives, and their autonomy.

"Our philosophy is to go out and acquire the best agencies possible, and we're sure not to kill their entrepreneurial spirit," Mr. Reece said.

Joseph B. McDonald, who sold his agency to the bank in 1992, said he at first feared he would be stripped of his autonomy in dealing with customers and providers.

"Most of my fears that I had early on about losing autonomy have not come to pass," said Mr. McDonald, whose 11-agent shop serves four counties.

While agencies like Mr. McDonald's have retained their hometown flavor, they have gained advantages like a centralized office that eliminates back- office chores.

"That lets the agencies devote more time to customers and cross-sell more, and be more responsive to clients," Mr. Reece said.

Mr. McDonald's association with BB&T has doubled his number of prospective customers-his agency regularly gets referrals from BB&T's mortgage and leasing departments, for example. And the calls its agents make on those parties are not cold calls.

"If they have a good relationship with the bank, it carries over to the insurance department," Mr. McDonald said.

BB&T Insurance sells everything from life insurance to health insurance and title insurance. But 80% of its business is property/casualty, and most of that is in commercial lines, a profitable area because of the rapid growth in the bank's region.

BB&T, a $29.2 billion-asset institution that earned $408.6 million last year, had technically been in the insurance business since 1922, running a single agency.

In the mid-1980s, the bank's top brass decided it was time to either exit the business or dive into it in a big way. A study was commissioned, and the most striking finding was that the industry was ripe for consolidation, Mr. Allison said.

Even more than the cross-selling potential, the promise of making agencies more profitable by putting them under one roof convinced the bank to commit to the business, Mr. Allison said.

Once they got into the business of selling insurance, BB&T started to appreciate that it is not an easy gig.

"If you go into the business, you better be good at it," Mr. Allison said.

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