First Union Corp. is plunging into the tricky waters of commercial property and casualty insurance for midsize and small customers.

The Charlotte, N.C.-based banking company committed to the business earlier this year after testing the market for nearly six months following its October 1996 acquisition of a small Virginia brokerage company. Now, First Union is getting ambitious.

"For all of the services that we offer, we want to be the dominant provider in the market," said David de Gorter, president of First Union Insurance Group. First Union is pushing toward leadership in commercial property and casualty even as most other banks shun the segment.

"One interesting thing is that this illustrates a fundamentally new approach to the insurance business from First Union," said David Kaytes, managing vice president, First Manhattan Group. Though an annuity sale is quick, property and casualty requires more sales effort, more service, and use of a different channel of distribution, he said. "Selling commercial property and casualty has a whole new level of complexity."

Because the insurance is such a sizable investment for a midsize business, it requires the consultation and selling services of an expert, he said. "It's hard to imagine selling by phone or mail in the way that First Union has built its retail business," Mr. Kaytes said.

He explained that banks were usually very good at selling a product through a retail distribution arm. But the mechanisms aren't there to handle the tremendous amount of servicing on top of a laborious sales process that already requires multiple consultations, Mr. Kaytes said.

"I would never take the risk of saying they wouldn't succeed at something they set out to do," Mr. Kaytes added quickly. "First Union has been one of the banks to watch in this business."

Competitors and consultants are watching closely but few know much about the young program. First Union will not release sales figures, names of underwriters, or other basic information.

Mr. de Gorter did say he wanted the business to be as successful for First Union as its annuity program. He added that selling the program to decision makers in the bank was very difficult, but he would not explain what tipped the scales in the program's favor.

He said executives who dealt with the bank's customers were cautious of such products when dealing with their favored clients, he said, and wanted to be sure the product was sound and could be serviced well.

He said another big challenge would be building interest in the product. "I equate it to the grocery store. How do you get to eye level on the shelf?"

The bank's first move was to acquire Taylor & Clark, Fairfax, Va., which had 25 agents, a 29-year history, and a track record selling corporate property and casualty insurance. The price was not disclosed. Before the acquisition, the agency generated $3 million in annual revenues. Of that, 50% was corporate property and casualty insurance, 37% was from employee benefit plans, and 13% came from personal lines of insurance.

The first three to six months were taken up with integration, he said. The bankers and brokers began making joint calls and the referrals went both ways, he said.

Mr. de Gorter said the agency was the foundation of its property and casualty initiative. Mr. de Gorter said part of the rationale for going after the middle market is that it is served by a slew of predominantly small agencies. "The middle tiers of companies are not exactly household names," he said.

"We want to leverage off the commercial relationships," he said. "In just about every business I know of, the more you buy the less you pay." The bank has 600,000 commercial accounts, he said.

To improve on economies of scale, Mr. Kaytes suggests that First Union can build its bargaining clout by limiting the number of underwriters it uses. That will mean bigger volume for those selected, he said.

After looking at the market, Mr. de Gorter has decided to stay away from bigger companies.

"We don't want to play to the high end, the Fortune 100 or even Fortune 500 companies," he said. Those huge accounts are adeptly handled by a handful of quality, large agencies, he said.

To sell to the middle market, First Union is making telephone and in- person visits to insurance prospects. "We're giving customers choices," Mr. de Gorter said.

To sell to companies with $5 million or less in sales, First Union relies heavily on a phone center. It has teamed up with The Hartford, which will underwrite and handle direct-mail response and servicing, including claims processing, for the bank insurance group's customers.

"It's very fast and very professional," he said.

Mr. de Gorter said he was determined to reduce the time it takes to get price quotes. Though a mortgage can be approved in 24 hours, companies take as much as 45 days to provide a quote for some insurance products. He did not discuss how he would shorten the time except to say than an initiative was under way.

Other bankers developing insurance programs don't share Mr. de Gorter's enthusiasm for the middle market. Although he applauds First Union for moving into the market, Roger E. Dunker, president and CEO of KeyCorp Insurance Management Group, has the same concerns as a majority of consultants. They wonder whether it's a feasible business for many banks.

"I've chosen not to go into the middle market," said Mr. Dunker. The market isn't suited to using call centers and is less of a commodity product, he said.

The business is more complicated and requires a lot more service than when dealing with smaller companies, he said. "I would be surprised if most banks went after the middle market."

Mr. de Gorter, however, said he wanted to be in many lines of business and be tops in all of them. He said initiatives to broaden the bank's insurance business were in progress. He expects to build momentum in life insurance, health insurance, personal (mass-marketed) property and casualty, and other lines. In addition to the telephone, First Union plans to use home banking, mail, and kiosks.

"I don't want to be in the business just to be in the business," he said.

Mr. Moore is a freelance writer based in Mt. Vernon, Maine.

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