The insurance subsidiary of Commerce Bancorp Inc. used a disciplined agency acquisition strategy to fuel its growth in the late 1990s and early in this decade before too-rich deal pricing forced a pause in buying, and rapid growth, the past two years, the unit’s chief executive officer says.
But pricing seems to have become more reasonable recently, said George Norcross, the chairman and CEO of Commerce Insurance Services, and more good opportunities exist today to buy agencies.
“There was a drive to move pricing up dramatically,” Mr. Norcross said, “and in the last two, two and a half years we stepped back, and we made very few acquisitions. We were smart to do it and lucky to do it because we would have overpaid.”
“It’s fair to say that there has been an interruption in our dramatic growth in the last two years because of the lack of high-quality acquisitions that were available because of unrealistic pricing,” said Mr. Norcross. “In the last couple of years we have been focused on organic growth.”
And the Commerce agency has averaged double-digit organic growth in the eight years since its founding, he said, while most publicly held brokers had 5% annual growth. “We have averaged organic growth of 15% a year,” he said, with cross-selling a big factor in the move to $80-plus million of annual revenue last year.
Commerce Insurance’s revenue grew from $62.8 million in 2000 to $82.4 million in 2003, the last year for which data are available. Revenue growth was slow in 2001, at $64.4 million, but steadied in 2002, to $73.3 million. The agency is the 24th-largest U.S. insurance brokerage by revenues.
Its organic growth was built around service, said Mr. Norcross, in much the way the parent company has used expanded banking hours to drive its retail success. Commerce Insurance has a 24-hour, 7-day-a-week service facility. “We believe the customer should be able to conduct business at their convenience,” he said.
Though Commerce had very low expectations for cross-selling, Mr. Norcross said, “we developed a focused and defined cross-sell program.” There are two ways to cross-sell, he said: “One way is through a relationship basis between banks and [commercial] customers, and the second is through retail products.”
“The customer must have, or perceive [having gotten], a real benefit. Many organizations lent their name as an endorsement and failed when they lacked the delivery of a preferred product,” said Mr. Norcross.
“Most people in the industry thought bank customers were going to flood automatically to their new insurance subsidiaries. We never had those expectations,” he said.
Mr. Norcross said the Cherry Hill, N.J., banking company got into the insurance business in 1996 because its founder, Vernon Hill, decided to develop an alternative source of fee income. The agency has a full-time division that looks at potential acquisitions every day, Mr. Norcross said. “We’re very selective about what we do. Culture is the most important factor, and we consider easy-to-buy revenue and a sales-oriented culture,” he said.
Commerce Insurance has been successful, in part, because “we were not tempted to make irrational, overpriced acquisitions along the way,” he said.
Commerce Insurance has 14 offices in New Jersey, Pennsylvania, and Delaware and annual premium volume exceeding $800 million.
As to future deals, Mr. Norcross said the agency would mirror the parent bank’s branch network along the East Coast. One of Commerce’s latest acquisitions was of the Porch Agency in Bridgeton, N.J., a firm that specializes in school district insurance and risk management. Commerce bought it in February 2003.
The company’s insurance business is diverse enough to weather downturns in any one segment, Mr. Norcross said. “Our business is 50% commercial, 25% employee benefits (our fastest-growing business division), and 25% personal lines,” he said. When one part of the business sees a harder market, as the personal lines group did in New Jersey, the agency’s organic growth is stabilized by the other lines, he said.
“I don’t think banks in general have been serious in their engagement in this business,” he said.
Five or six banks have a serious commitment, he said, but none is so direct a competitor for Commerce as the large, regional insurance brokerages. “There is no bank that we have material competition with in the business,” he said. “We never run into Fleet, we never run into Wachovia or Citizens,” large regional banking companies with operations in New England and the Middle Atlantic states. (Fleet was bought this year by Bank of America Corp.)
Only those that make a commitment will be successful in the insurance business, said Edward Kiessling, the chief operating officer at Commerce Insurance. “A lot of banks put bankers in charge of the insurance operations, and that doesn’t seem to work,” he said.
Mr. Kiessling said the insurance paperwork can be killing. “We invested in technology, and it allows us more time to focus on other things. The personal lines group are imaging all their paper now, and that will continue with other divisions,” he said.
A big area of focus for the agency has been training people internally as customer service representatives and agents, Mr. Kiessling said.
