traditional lines of insurance to their retail customers.
But a small and growing cadre of institutions is quietly building what may be a more sensible business for many commercial insurance.
Banks ranging in size from $356 billion-asset Chase Manhattan Corp. to $8 billion-asset Commerce Bancorp of Cherry Hill, N.J. are forming alliances with insurance brokers or even buying them outright in an effort to offer policies to small and medium-size businesses.
Banks say that "commercial lines" insurance designed to support partnership buy-sell agreements or pay off creditors if a key person is stricken is a logical extension of their core lending business. The products include property- casualty, group health and life insurance, and life and disability coverage.
Industry observers also suggest that selling higher-premium commercial policies to businesses may be a simpler proposition than figuring out the riddle of mass-market retail insurance.
"It may be the easiest way for banks to sell insurance," said Mary Ann Godbout, a vice president with Conning & Co., an insurance industry asset- management and research company in Hartford, Conn.
Ms. Godbout and other consultants argue that the long-standing commercial lending relationships that banks have developed in their markets position them well to sell insurance as an add-on.
This natural tie-in has helped Chase Manhattan, one the nation's most prominent corporate banks, to build a respectable commercial insurance business.
But rather than going it alone, Chase created a joint venture two years ago with USI Holdings Inc., a leading broker of commercial insurance and employee benefits services. Under the alliance, Chase has been able to establish an employee benefits business focusing on the its 15,000 middle-market commercial customers.
Today, about 10% of the bank's annual $170 million in insurance-related revenues comes from commercial insurance, says Peter Aharonyan, president of Chase Insurance Group. (The remainder comes from credit insurance and a wide range of retail offerings.)
By teaming up with USI Holdings, Chase gets a partner that already has long-standing relationships with many commercial insurance underwriters as well as an understanding of the intricacies of each industry.
"This is a very specialized business and one that requires a considerable amount of experience and history, especially working with the insurance companies.''
Meanwhile, other banks have simply purchased agencies in their markets.
In June 1998, for example, Mellon Bank Corp. picked up Reading, Pa.-based Clair Odell Group, which is listed by Business Insurance as the 53rd largest U.S. insurance broker, with $20.7 million in revenue. The company concentrates on business customers and affluent individuals.
Commerce Bancorp has purchased eight insurance agencies in the last three years and generates about 75% of its premium volume from commercial property/casualty coverage and group health insurance.
BB&T Corp., Winston-Salem, N.C., owner of the 12th-largest U.S. insurance broker, with $80.7 million in 1998 revenue, has acquired 12 agencies this year. Well over half of its business is with commercial customers, said H. Wade Reece, president of BB&T Insurance Services Inc.
One of commercial insurance's appeals for banks is the great cross-sell potential with other commercial financial offerings. While price-conscious retail customers often ignore entreaties to bring more of their financial services business to a smaller number of providers, business owners and managers may well respond to cross-selling.
"It may turn out that business customers are much more interested in consolidating their affairs and understand the leverage they get from that much better than consumers do,'' said Kenneth Kehrer, a consultant in Princeton, N.J.
Banks are unlikely to do much insurance business with the very largest businesses, which are generally buying through global brokerage firms like Marsh & McLennan, unless they acquire those brokers, Mr. Kehrer said.
But they have significant opportunity with midsize and small businesses, he said.
The most efficient way to enter the commercial insurance business, according to the prevailing view, is to buy existing agencies, because they are available and affordable and because it is the quickest way to obtain critical expertise in different industries. Insurance agencies are selling for about five to six times pretax income.
Banks can boost the profitability of independent agencies, whether they sell mostly personal or commercial lines, by consolidating the back office operations of very small businesses into a larger organization and by bringing their brand name to the table.
An added potential benefit of bank ownership on the commercial side is the ability to supply the agency with prospects. Success, however, is not automatic, consultants caution.
"When you're buying an agency," said Valerie Jordan, a consultant in Belchertown, Mass., "you're also buying the people, their reputations, and their relationships with their carriers."
Even assuming a bank buys a well-run organization at an attractive price, selling insurance to its corporate and small-business accounts will take much more than handing a customer list to the agency.
"We never cold-call the other business units' customers," said William Kanehann, executive vice president and chief operating officer of Mellon/Clair Odell, as Mellon's new insurance agency is now known. But since Clair Odell always depended on referrals, sales people welcome the additional leads possible with bank ownership, he said.
The most common approach to selling commercial insurance is through a stand-alone agency that does business with multiple insurance carriers. In addition to marketing programs the agency used before bank ownership, banks expect commercial lending officers to introduce the insurance business to their clients.
"The basic tool for cross-selling is needs profiling," said BB&T's Mr. Reece. "We look at every client's needs and profile financial solutions for them. And if insurance is a financial solution, a referral is made."
That means that bank relationship officers ask their customers whether they are satisfied with their insurance coverage or would like to meet someone with the bank-affiliated agency. Bankers will need some familiarity with insurance to make this inquiry effectively, executives say, but do not need to be insurance experts.
The challenge, according to both consultants and bankers, is to get line lending officers and insurance sales people working together.
At Mellon, bankers and insurance brokers are brought together for social interactions, business meetings and training sessions to foster getting to know one another, said Mr. Kanehann.
Many banks are taking the following tack in pursuit of commercial insurance sales:
Buy one or more agencies.
Leave the insurance executives in charge.
Change the agency's name to the bank's or at least add the bank's name to the original moniker.
Enlist banking officers in the effort to find prospective customers.
But a few are approaching the business differently.
Fleet Financial Group, for example, launched a program in 1997 with Hartford Insurance Co. under which Fleet refers business customers with up to $5 million in sales to the Hartford for property-casualty coverage.
Except for a few mailed pieces to customers each year, Fleet does not actively seek insurance business from its commercial customers, said Jim Schepker, a company spokesman. Rather than sell its own advisory capabilities, Fleet pitches the convenience of calling the Hartford at a toll-free telephone number, extended hours that sales representatives are available, and fast turnaround on price quotes.
And while many observers say the bank's name is among the most valuable assets it can contribute to an existing agency, some banks prefer to leave identities alone. People's Bank in Bridgeport, Conn., announced its second insurance agency acquisition in September. Both will continue to operate under their existing names.
And although most people say the opportunity to sell insurance to bank customers is the biggest benefit of bank ownership, the sentiment is not universal.
"If you're going in just for cross-selling," said Vernon W. Hill, chairman and president of Commerce Bancorp in Cherry Hill, N.J., "my opinion is that banks are not going to be happy."
About 25% of new insurance is generated by bank referrals at Commerce, Mr. Hill said. That, however, combined with improved management, is enough to make his agency- purchase strategy worthwhile.
"You convert them from glorified Mom and Pop businesses into a big financial business," he said.
Mr. Stoneman is a freelance writer in Albany, N.Y. John Kimelman contributed to this report.