Waypoint Financial bought its first property/casualty insurance agency nearly two years ago - but that hasn't stopped it from hiring a third-party firm to provide personal lines insurance to its customers.
The plan highlights the difficulty of profitably selling personal lines insurance to bank customers, even when a bank has taken the plunge and bought its own agency.
The bank is outsourcing its personal lines operations to Banc Insurance Services for "revenue-driven reasons," said C.W. Smith, the president of Waypoint Insurance Group, a unit of the $5.9 billion-asset Harrisburg, Pa., bank- ing company.
To build the infrastructure to sell and service auto and homeowners policies on a large scale would cost too much in money and other resources, Mr. Smith said. "It's less expensive to outsource it, and to outsource it to somebody that has the background of integrating into the bank platform."
His company's existing insurance agencies sell mostly commercial lines, he said, with a small personal lines business.
He also said the bank is eager to buy more commercial insurance operations to expand its agency business. "We have some real targets in mind," he said.
"The Waypoint model represents the future of bank insurance deployment," said Jeffrey Chesky, the president and chief executive officer of Banc Insurance Services. "They take their capital and buy books of business and agencies, and put the commodity products on a highly efficient platform so that they can provide excellent services and run the business profitably."
"I think there is an interesting question as to whether or not mass market personal lines is an attractive business for banks" at all, said James Campbell, a senior vice president at Reagan Consulting in Atlanta. Selling auto and homeowners is a low-margin business that requires a lot of volume, he said, and doesn't always fit into the strategy of banks that want to use insurance as a way to better serve highly valued affluent and commercial customers.
But for the banks that decide there is a strategic reason for them to be in the mass market insurance business, outsourcing much of the operation is a good idea, he said.
Though Waypoint employees have been referring personal lines customers to the agency, "part of the problem with that was the fact that we simply did not have enough people to follow through on the opportunities," Mr. Smith said. To handle those insurance needs without having to build a much bigger operation of its own, Waypoint turned to Banc Insurance Services of Springfield, Mass.
"Traditional local insurance agencies don't have a lot of the infrastructure to meet the insurance needs of midsize and larger community banks," said Mr. Chesky. "They may not have the technology infrastructure, they many not have the breadth of markets, they may not have the systems and procedures in place to handle the demand."
Mr. Smith said, "I don't think that yet the public has accepted the fact that their bank branch is the same as their State Farm agency, but I do think that over time, they will." Waypoint wants to be prepared to handle all its customers' personal insurance needs, he added.
As part of the outsourcing arrangement, the agents at Waypoint Insurance Group and bankers will be able to feed bank customer requests for personal lines products into the phone sales unit of the Massachusetts company.
"From a consumer standpoint we will be handling all of the commodity product, auto, and homeowners in particular," Mr. Chesky said. Larger commercial accounts with more sophisticated needs will be handled by Waypoint's agency operation.
Eventually, he said, his company hopes to handle some of Waypoint's "more commodity-based, small commercial business," as well.
Mr. Chesky said that most people handle their personal insurance needs over the phone so that the transition from one insurance operation to the other will be seamless. Customers who call in asking about personal lines insurance can be transferred to Banc Insurance's call center in Springfield.
In addition, Mr. Smith said, "customers will be contacted at the time they do something within the bank that indicates there might be an opportunity to talk to them about a specific product" - such as buying a car or getting a home loan.
Mr. Smith said Waypoint is educating its employees about the arrangement and hopes to have it up and running by Feb. 1.
Personal lines products like auto and homeowners are not generally very profitable for an agency because of the small commissions, Mr. Chesky said. At the same time, banks like Waypoint have huge pools of customers who need these products.
"Personal lines and small commercial is a very thin-margin business, so you have to deliver it and service it in a highly automated, highly efficient" way, Mr. Chesky said.
Banc Insurance Services specializes in outsourcing these services to banks and credit unions. Waypoint is the company's 10th financial institution partner but its first with a large, existing insurance agency operation.
However, Mr. Chesky said, his company always planned to work with banks that owned their own agencies.
"Our business model has always been based on two phases of development and maturity in the bank insurance space," he said. "Stage one, the bank will get into the business, either building, buying, or outsourcing. The second phase of their agenda will be to buy the books of business of local agencies that they can purchase at attractive prices and integrate them into their agency."
He says his company can work with banks at either stage, helping to build an operation from scratch or taking on the personal lines business of an agency the bank buys.
Waypoint Bank was formed in September 2000 when two central Pennsylvania thrifts - Harris Savings Bank of Harrisburg and York Financial Corp., the parent of York Federal Savings and Loan Association in York, Pa. - joined forces.
It went on to buy Owen Insurance Agency, a property/casualty firm, in December 2000, and to start up a title insurance company, Waypoint Settlement Services.
Mr. Smith said the agency operation sells about $30 million of insurance premium a year. The commercial lines agency sells commercial property/casualty insurance for small and midsize businesses, as well as employee benefits such as long-term-care and life insurance.
Mr. Campbell of Reagan Consulting said that banks really need to look at commercial lines and personal lines separately when designing their insurance strategies.
"A lot of the independent agencies are predominantly commercial-lines-oriented," he said, though they might "take care of the personal lines business for the business owner, or some of the principals, or the executives."
"For a bank that wants to do a broader, mass market, personal lines strategy, an agency is not really the best platform for that," Mr. Campbell said.
At the same time, he said, as Waypoint discovered, it can be difficult for a community bank to generate enough volume in personal lines to justify the cost of building the infrastructure to sell and service these products.
Banc Insurance Services can develop enough volume to make selling personal lines profitable by pooling the business from its several bank partners, Mr. Campbell said. "A single community bank isn't going to develop that volume."
