For F.N.B. Corp., insurance has been a learning experience over the past five years, and though the Hermitage, Pa., bank has gone through some dramatic changes - taking itself into Florida and then out again - it has remained committed to owning agencies in Pennsylvania.
Stephen J. Gurgovits, the company's president and chief executive officer, says the business line remains a growing one. Though F.N.B.'s approach to cross-selling has been forced to change to accommodate unexpected obstacles, its overall goal of selling insurance to its commercial customers has not.
"Based on our total income, it's a small part of our operation, but it's a growing part," Mr. Gurgovits said.
The company's insurance strategy is part of a larger strategy to sell a variety of products to each customer, he said. "That's the drum we're beating and beating."
Yet the company has had to refine the way it approaches cross-sales since it entered the insurance business in 1999. "We had a vision of how this would work," Mr. Gurgovits said. "Perhaps we were over-confident in our ability to cross-sell," he acknowledged.
F.N.B. found cross-selling much more difficult at first than it had expected, he said, but has adjusted its approach to one it says is more successful than in the early days. "Day one, we were just making referrals. Now we have a much more organized approach, and our lenders are much more informed about the product," he said.
"Five years ago a lot of people didn't think of our bank for insurance. It takes time to establish in the public's mind," he said. But "the deeper you can make your relationship with the household or the business, the more it solidifies the overall relationship, and insurance is just another one of those products."
Peyton Green, an analyst at First Horizon's FTN Midwest Research in Nashville, said that offering a variety of products is important for F.N.B. because of its location. "In their market they're slower-growth, so they kind of need to work towards a bigger share of the wallet because the wallets don't grow quite as fast," he said.
F.N.B. entered the insurance agency business in June 1999 when it bought Gelvin, Jackson & Starr, an agency in Meadville, Pa. Later that year it went on to buy Roger Bouchard, a Florida agency, and it continued to do deals in both its areas of operation.
"Initially we had our bankers referring our customers to the insurance agents, who would follow up on the leads and refer back to the bankers on how the call went," Mr. Gurgovits said. "We did some business that way, but we weren't happy with the results."
It wasn't the number of referrals that was a problem, he said, it was their quality. "The bankers obviously weren't familiar enough with what a good insurance referral was. We were referring commercial business that the insurance companies didn't want to underwrite or perhaps had special premiums attached to it."
Every bank that has gotten into selling insurance has realized "it was a little tougher than we thought it would be," Mr. Gurgovits said. "But you learn from your mistakes. You learn how to improve processes as you go forward."
He said F.N.B. has spent time educating bankers about what makes a good insurance prospect, improved the timing of its insurance pitches to get to customers when they are most receptive to considering a change of insurance agency, and encouraged joint sales calls and sales meetings between agents and bankers. "We still don't have the ultimate model," he said. "It's certainly a lot better than it was, but this is still evolving."
F.N.B. spun off its Florida operation on Jan. 1, including Roger Bouchard Insurance Co. in Clearwater, the agency the bank had bought in late 1999, because executives felt that investors would value the two operations more highly as two banks than as one.
Fifth Third Bancshares said this month that it would buy First National Bankshares of Florida Inc., the F.N.B. spinoff.
The Pennsylvania bank was left with four agency offices in its First National Insurance Agency, and it has added three more through a deal that closed July 30 for Morrell, Butz & Junker of Pittsburgh. The Morrell Butz deal added about $4 million of revenues, doubling the size of F.N.B.'s remaining commercial lines business.
"We continue to like the line of business, and we love that it increases our noninterest income," Mr. Gurgovits said.
The $4.8 billion-asset banking company has branches in western Pennsylvania and eastern Ohio.
James Campbell, a senior vice president at Reagan Consulting in Atlanta, said F.N.B.'s realization about the difficulties of cross-selling is the largest lesson that banks have learned since they began buying agencies.
"I think there was a thought that banks could fundamentally change the economics of insurance distribution by really leveraging the business through the cross-sell," he said. "And I think what we found is that it has not fundamentally changed the economics of the business, it has marginally enhanced it." Banks have learned they need to view insurance as its own business and not just assume it will be transformed by being part of a bank.
For example, "one of the issues we had was that we were accustomed to controlling the bank relationship," Mr. Gurgovits said. If a customer wanted to borrow money, for example, the banker could look at the financials and make a decision. Ultimately, it was up to the bank to say yes or no.
The insurance agency operates differently - it is a sales operation, with the insurance underwriters at the carriers making the final decisions on whether a client gets insurance, and at what price. Just because the agency wants to give a customer insurance does not mean it will find an appropriate carrier, Mr. Gurgovits said, and it took time for his bankers to understand that.
Sometimes even when the agency did find insurance, the agent would go back and find "it wasn't as competitive as what [the client] already had," he said. "Our bankers were a little perplexed. They thought if it's a good commercial lending relationship it would be a good insurance relationship."
But the company has improved the process, educating its bankers about the products and what to look for in customers and encouraging joint calls instead of pure referrals, he said.
In addition, the bank is capitalizing on what it knows about its customers to get to them at the right time for insurance sales. "We now know we have to work back from expiration dates … with identifying and setting up the sales calls," Mr. Gurgovits said. The bankers need to introduce the agents in the period of time that customers are most likely to entertain competitive quotes on their insurance, usually about 150 days before the existing policy expires.
With the time to gather information and shop around for insurance markets, "our timing is better," he said. "We're coming out with hopefully competitive proposals."
Each commercial lender is required to make a certain number of insurance referrals, though the number varies from department to department. But insurance referrals are discussed in regular sales meetings, he said. "The process is working a lot better. We're keeping our insurance agents actually pretty swamped with opportunities," he said. "And it's 'top of mind' now with our commercial lenders when they're talking about a loan."
"Every single person in this bank, and that includes all of our commercial lenders, has some form of performance compensation," he said. "Our lenders are tuned in to the fact that they can make additional incentive comps. Insurance just fits into that model real well."
John Wepler, an executive vice president at Marsh, Berry & Co. in Concord, Ohio, the consulting firm that worked on the Morrell Butz acquisition, said, "F.N.B. has been like every other bank in the world in that they're in uncharted territory and they've tried a lot of things. Some have worked, some have not."
The company lost some of its insurance agency leadership to the Florida spinoff, Mr. Wepler said, but actively sought out an agency with experienced management when it bought Morrell Butz.
"I think their strategy going forward is going to be similar to what their strategy has been in the past, to continue to acquire in-market agencies that provide additional volume but also additional talent," he said.
Despite the company's high hopes for insurance cross-sales, Mr. Gurgovits said, cross-selling is not taken into account at all when a potential agency deal is evaluated.
The company looks to buy a firm that is already profitable, he said, though the bank can add some efficiencies by consolidating a purchased agency with its own.
The bank also feels it is important to have the agents making just as many referrals to the banking side as the other way around. When F.N.B. buys an agency, "we tell these people, for this relationship to work for our commercial lenders it can't be a one-way street," he said. "The first thing you ought to do is refer some business back to them."
In some respects it is actually easier to refer business back to the bank because banking products like account services do not have expiration dates to coordinate, he pointed out.
Reagan's Mr. Campbell said that developing personal relationships between bankers and agents is crucial for cross-selling success.
"Pure economics is not the only reason the banks have gotten into this business. They do want to deliver more products and services to key customers, and they want to really tie themselves to more of those key customers," he said. The insurance agents need to work closely and well with the lenders who act as gatekeepers to the commercial clients if they want to be able to bring that added value.
Craig Whitehead, a senior consultant at Milliman USA in Chicago, said that one lesson from the past few years is that no one model defines successful bank insurance sales. Some, like F.N.B., focus on integrating the insurance agencies and pushing cross-selling; others have kept their agencies more separate; yet there are examples of both models that work well.
"They finally figured out that this is a core business, that they need the fee income. It's a wonderful counterweight to the rise and the fall of the spread income," he said, and this aspect of insurance is as important as cross-sales.
Mr. Gurgovits said that an additional payoff from the agency's growth is increased leverage with insurance companies. "With this last acquisition we wanted to pass the threshold of $50 million in premiums. That's the threshold we can then leverage out with the insurance company for better contingency splits," he said. "It's clear to us that the insurance companies, in their perfect world, want to deal with fewer and larger agents. In order to have as much leverage as we can get with them, we need to grow this line of business."
Mr. Whitehead said that banks have become a lot more savvy about dealing with insurance companies. "The insurers have competed aggressively to get into banks," he said. "Some banks see that as a wonderful opportunity to leverage the best deal that they can."
His growth plans include both organic expansion and acquisitions, Mr. Gurgovits said. "We still need to get an agency in Ohio," he pointed out.
Not counting the latest deal, year-over-year earnings growth has been about 20%, he said.
A purchase in Ohio would make sense for the bank, said FTN Midwest Research's Mr. Green, since it already has branches there. He said F.N.B.'s overall acquisition strategy is sound because insurance is "not a capital-consuming business," so it lets banks expand revenues without spending too much.
Before the Florida spinoff, F.N.B.'s 2003 insurance revenues and fees were $35.3 million, up 3.4% from the prior year. On a pro forma basis, the Pennsylvania end of the company had $9.1 million of the $35 million, and $3.6 million came from the commercial lines agency.
This commercial lines revenue was up from $3.3 million in 2002. This year the Pennsylvania agency is on track to report $4.4 million of revenues, its parent said, not including the Morrell Butz deal, which adds $4 million.
Mr. Gurgovits said that James J. Morrell, the president and CEO of Morrell, Butz & Junker, is expected to take over the entire First National Insurance Agency, though the appointment has not been formally announced.
The agency offers commercial property and casualty, life, health, and group benefits to both commercial and individual clients. Morrell Butz adds both geographic locations and expertise, he said, since the bank's agency operation did not have an employee benefits division.
F.N.B.'s history of agency ownership helps it find new deals, Mr. Gurgovits said. Agents at potential acquisition targets "see a commitment to this line of business, they see capital there for expansion," he said.
And, "frankly, the other thing they like about our company is, we're not running the insurance agency with bankers. We're letting the bankers run the bank and the insurance agency people run the insurance agency," he said. But everyone comes together for sales meetings because "we want to keep reminding people that we're one team and we're joined at the wallet."
"They know from the very top of the house that this is important," he said. Not only is Mr. Gurgovits knowledgeable about insurance, he says he was personally responsible for the bank's first agency purchase.
He was visiting the president of the Gelvin, Jackson & Starr agency on a sales call years ago to persuade him to switch bank accounts. The two executives started discussing the then brand-new trend of banks buying insurance agencies; there were more conversations; and a deal was struck. It shows the bank's level of commitment that the current CEO "was involved in finding and negotiating the first transaction," he said.
F.N.B., like many banking companies, does not report the percentage of new business it gets by cross-selling. But Mr. Campbell said that for most banks "we all know it's a relatively small piece."
Recognizing that the success of an agency is not completely tied to cross-selling, however, frees the agency to pursue growth on its own terms, he said.
