Commerce’s Maverick Dedication to P&C

Conventional wisdom has it that to succeed in insurance, banks must enter and stick to the life and annuity business.

But Commerce Bancorp of Cherry Hill, N.J., launched its insurance business five years ago by buying agencies that dealt primarily in personal and commercial lines of property-casualty insurance, and by cross-selling those products heavily to its banking customer base.

By sticking to that strategy, Commerce National Insurance Services has grown into the fifth-largest bank-owned insurance agency in the United States. Last year its premium volume totaled $500 million and its revenues rose 9.3%, to $55 million.

George E. Norcross, president and chief executive officer of Commerce National Insurance Services, says it has become such an important part of the $8 billion-asset parent’s operations because of two factors: cross-selling and service.

Most other banking companies derive most of their insurance sales from life products and annuities, which they classify as investment lines, and seem to pay only lip service to cross-selling. By contrast, Commerce has built its insurance operation by implementing cross-selling programs for its commercial and personal property/casualty lines.

Cross-selling programs are vital if banking companies want to sell insurance to their retail customers, Mr. Norcross said. “Customers need a reason to buy their insurance from the bank,” and simply making it available is not enough, he said.

Commerce National’s agents have always been aggressive about setting up insurance meetings with the parent company’s commercial clients. Its latest cross-selling program, Commerce Advantage, gives banking customers discounts of 9% to 16% on auto and home insurance.

The program was so aggressive that the Professional Insurance Agents of New Jersey, the Trenton-based chapter of the National Association of Professional Insurance Agents, asked state regulators to scrutinize it.

New Jersey regulations permit insurance agents to set up mass-marketing programs for affinity groups, such as employees or members of affiliated professional associations. But Jill Muratori, government affairs counsel for the New Jersey agents, said that “the way we read the regulation” bank customers as a group “couldn’t be allowed” to benefit from such programs.

So the agents brought Commerce Advantage to the attention of the New Jersey Department of Banking and Insurance and asked for a clarification of the regulations. If banking companies could give discounts to groups of their customers under the regulation, so can independent agents, Ms. Muratori said.

The regulators have not issued a clarification yet.

Mr. Norcross said Commerce Advantage has given the unit’s revenues a strong jolt. Though the program has not received a marketing blitz, commission revenues have already grown at an annual rate of 20% since the program started three months ago, he said.

Insurance sales usually contribute 2% to 3% of a banking company’s net earnings — Mr. Norcross called it merely a “rounding error” for most banking companies. But while the company would not release specific insurance sales figures, it says Commerce National’s net sales contributed between 9% and 10% of the parent company’s $80 million of net income last year.

Service is another area where Commerce National has been more aggressive than most other bank-owned agencies, Mr. Norcross said. Since banking companies are relatively new at insurance sales, they can succeed in this area only by providing strong service, he said.

Insurance customers are confronted by policy language they do not understand, bureaucratic claims personnel, and post-claim treatment that often borders on harassment, Mr. Norcross said. “That’s how insurance companies have always operated. We wanted to redefine the business so the customer comes first.”

The insurance customer “doesn’t differentiate the insurance broker from the insurance company,” he said. When something goes wrong, the customers “say, ‘I wrote my check to Commerce National. Commerce National has to solve the problem,’ ” he said.

So the unit has taken the responsibility for filing claims — which Mr. Norcross said usually generates “nothing but horror stories” — away from the product providers. It has also linked its servicing unit to the parent company’s 24-hour telephone help line, so customers can speak to a service rep at any time about insurance needs.

The unit came into existence in 1996, when Commerce Bancorp bought Keystone National Insurance of Cherry Hill, Mr. Norcross’ 23-year-old independent property/casualty insurance agency, and Buckelew & Associates, a Toms River property/casualty and employee benefits agency.

The two agencies were merged and renamed Commerce National Insurance Services, which is now headquartered in Cherry Hill. Mr. Norcross has headed the unit since then.

He said he decided to sell his agency to Commerce because he felt his agency could grow more rapidly as part of the banking company. Also, he said he could more easily implement ideas for changing the insurance business as part of Commerce than as an independent agent.

The unit sells auto, homeowners, employee benefits, commercial and individual health insurance, and loss control services from over 50 carriers.

It sells some life insurance, but Mr. Norcross says it does not promote those lines, and right now would be the wrong time to start promoting it, because life insurance would die if the bill to repeal the estate tax were enacted.

Annuities are sold through the parent company’s investment unit, Commerce Capital Markets. The company does not release annuity sales figures.

Vernon Hill, chairman of Commerce Bancorp, said it made a big commitment to insurance because doing so was the only way to successfully sell it. “It has to be supported from the senior management level,” he said. “You have to make a serious commitment to make this happen, and let the insurance people run it. Bankers can’t run the insurance business.”

Wall Street now rewards banking companies for entering the insurance business, because the fee income it provides makes the companies less dependent on interest rates, Mr. Hill said.

Size is also important for a bank-owned agency, Mr. Hill said. “Only a few banks will be serious players in insurance,” and those companies will be committed to building a sizable operation that can serve customers well and turn a profit, he said.

Commerce National currently has 304 agents from the 10 agencies that have been bought and merged into the unit, and Mr. Norcross said the parent company is constantly assessing agencies as possible acquisition targets.

However, Commerce Bancorp is not going to buy every agency that comes down the pike, Mr. Norcross said. The insurance unit has done well partly because its parent didn’t overpay for agencies, he said. “A number of banks paid obscene amounts for agencies,” which drove up prices for everyone.

A spokesman said Commerce National uses a unique agent compensation package that includes stock options, salary, and bonuses, instead of commissions. Stock options are so important in the package because they give agents a stake in the success of the entire company, the spokesman said.

Commerce Bancorp plans to open two bank branches in Manhattan this fall and acquire an insurance agency in the New York area soon after that. But Mr. Norcross said finding the right agency might take some time. New York is “very, very competitive,” he said. “There are lots of high-priced producers.”

John Wepler, vice president of mergers and acquisitions for Marsh Berry & Co. in Cleveland, said Commerce National’s focus on cross-selling and its history in the insurance business will help it remain competitive as more banking companies offer insurance.

“Banks stumble when they get into insurance, until they find their way,” he said.

Commerce National is run by “very self-assured, aggressive, competent individuals with a very well-defined strategy,” Mr. Wepler said. Commerce officials look for top-performing agencies to acquire and have high performance expectations, he said.

Mr. Hill said that, like its parent, which has defied common wisdom by opening branches in a time when many competitors have been cutting back on brick-and-mortar outlets, the insurance unit has also forged its own path.