After six years in the insurance business, Hibernia Corp. has learned to take an aggressive stance on providing consulting services as a means of overcoming the commoditization of insurance products and building success in cross-selling.
It also has stressed education of bankers and communication between the agency and the bank, and it has looked to follow the bank's Texas expansion as it enjoys the benefit of the Louisiana agency deals that gave it coverage of the bank's home territory.
"Pretty much all agencies sell all the same things, and they have very similar companies that they use to provide the products," said Steven C. Terry, the president of Hibernia Insurance, the New Orleans banking company's agency arm. To counteract that, Hibernia tries to be aggressive in offering services - including loss control, claims advocacy, technology support, and informational resources - that help customers make the most of the products they buy.
"We're trying to help them manage the total cost of the risk that they may have," he said, " ... to help them better control and understand and manage their insurance program and their potential for loss."
Mr. Terry said Hibernia's cross-selling operation has blossomed in recent years.
"Over the last probably two, two and a half years we have had a fair amount of success in bringing bank customers into the insurance department," Mr. Terry said, something he attributed to better education of bankers and communication between the agency and bank.
Achieving success in commercial property/casualty insurance sales meant making a large-scale commitment to agency ownership, Hibernia decided when it bought Rosenthal Agency in Metairie, La., in July 2000.
"I think when Hibernia first got into the business, like most banks, they thought it was a good idea to do it. But once they got into the business, it wasn't as easy as they thought to translate bank customers into insurance customers," Mr. Terry said.
"Once they acquired a couple of small agencies in '98, they took the plunge and really acquired one of the premier agencies in Louisiana in 2000, the Rosenthal Agency," he said. "Rosenthal kind of raised the bank to a new level in terms of commercial insurance capabilities."
"We have four offices in the state of Louisiana, which is basically the bank's footprint," Mr. Terry said. "The bank has now expanded into Texas. We have Texas clients, and we are actively seeking some partners in Texas."
He joined Hibernia Insurance in March 2002 from Fifth Third Bancorp's insurance division, where he was a senior vice president.
Hibernia now has about $17.5 million of annual property/casualty and employee benefits revenues, Mr. Terry said. Total insurance revenue was $18.2 million last year, up 12.7% from 2002. Revenue also jumped dramatically from 2001, gaining 21%, to $16.1 million. The parent company's noninterest income in 2003 was $350.1 million, up 16.3%. Insurance revenue was about 5.2% of noninterest income last year.
But being a major business line is less important than making a strong contribution to earnings, Mr. Terry said. "Our goal is, we want to be able to provide products and services to banking customers and prospects, and we want to have a solid contribution to the bottom line. Whether we end up being 1% or 2% or 15%, it will be what it will be."
"We bring more value to the customer, and we strengthen the relationship between the bank and the customer," he said, though he added, "Insurance can also be a fairly good source of revenue on a particular account."
This attitude is a smart one from an insurance executive, said Craig Whitehead, a senior consultant at Milliman USA in Chicago, because it shows an understanding of what is best for the bank, not just for the agency. However, he agreed that for some banks a certain critical mass is important to make cross-selling work.
"Most banks started off a little wobbly," Mr. Milliman said, "but they hit their strides in different ways," and some have seen more of a need to build bigger insurance operations than others.
Still, too many banks talk about all the retail customers they have as though that is a realistic market for their agency operation. But "if you draw a reasonable circle around where your agency is, how many people are in your footprint, a rational footprint for introducing and closing a sale?" Mr. Whitehead asked. Without decent geographic coverage, the insurance agency just won't be pertinent for most bankers, he said.
John Wepler, an executive vice president at Marsh, Berry & Co. in Concord, Ohio, said that for most banking companies a "critical mass" agency size is needed to make the best impact. An agency with less than $5 million of revenue will probably have only a few producers, who are also agency owners, and may lack the support staff to handle a major cross-selling initiative, he said.
In addition, a smaller agency may be too dependent on its one or two producers, he said.
Mr. Terry noted a product area that has been a big contributor. "More of our success has been on employee benefits because employee benefits has a much shorter window," making it easier for clients to change their provider, he said.
The bankers play a key role in getting face time for agents with customers.
"People generally aren't very happy with their insurance programs, especially employee benefits," Mr. Terry said. Sometimes all the insurance agents need is someone to "just ask the question" about whether the client has insurance needs that are not being met, and that job can be done by a banker. "The bankers may not have the insurance expertise," he said, "but they've got the ear of the client."
The bank over all has been focusing on becoming "more of a selling culture, and as such each banker has goals for referrals," Mr. Terry said. That commitment to change, which comes from the CEO, is stimulating bankers to work with the insurance agency, he said.
"Part of what we have to do to make this work is educate the bankers," he said. Bankers need to understand that just because an insurance agent met with a client today does not mean a policy will be sold any time soon, he said. If the client's coverage renewal time is not for several months, it may take that long before any product is sold. However, this does not mean the agent is not working on the account.
"You've got to communicate where you are in the process," Mr. Terry said. "Communication is critical as we go down the path."
Each time the agency sells to a client referred by a banker it makes the next referrals from that banker easier, he said.
"We think we can improve our cross-selling opportunities at least for the next foreseeable few years. Even though we've been successful over the past few years, through referrals, we're just scratching the tip of the iceberg," he said.
One area where Hibernia is looking to grow is among small commercial clients. "We've put a platform in place that will allow us, hopefully, to efficiently go in and go after that market," Mr. Terry said.
Insurance "becomes a little bit more of a commodity at the small-customer end, and we still don't want to do it as a commodity, we want to preserve our service capabilities" but still serve these clients efficiently, he said.
Milliman's Mr. Whitehead said that approaching small commercial clients in this way is somewhat different than other banks' approach, since the latter often group small commercial clients with personal lines customers. However, he said, if a bank can provide extra services efficiently to these clients, it may inspire a high level of loyalty that, while hard to quantify, could be very valuable.
"Many of them don't say they're small, and they want to be treated as if they were big, particularly by their bank," Mr. Whitehead said. Not to mention that the demands on the time of the average small-business owner makes working with fewer providers more appealing.
Marsh Berry's Mr. Wepler said that small business is "an underserved segment" where banks have good opportunities because of their strong relationships with these clients on the banking side.
Though small businesses are sometimes perceived as being not so profitable insurance customers, they become a lot more attractive when they are also getting loans, wealth management and account services, and other products from the bank.
"That customer can be in and of itself a large-revenue customer if you add those different segments together," Mr. Wepler said. "If a bank truly believes in relationship management, small business can produce a high hit ratio and a lot of wallet share."
The agency operation has not done a deal since buying Rosenthal but has relied on organic growth since then. "We're looking for any acquisition that would bring value," Mr. Terry said, however, noting his interest in Texas.
Over all, he said, banks in insurance is still in its infancy, and banks are just beginning to figure out how to make agency ownership work.
Banks "expect their customers will flock to their insurance operation" but find out that this is not true.
Many banks "ran out at one time and started buying insurance agencies," Mr. Terry said. Then they asked, " 'Now how do we get our arms around this?' "
Instead, agencies must "integrate into the bank and really start driving home that cross-sell opportunity." To cross-sell successfully a bank will need some amount of integration, he said, but most face cultural problems.
"Insurance agencies are distinctly different from banks, in the way they operate, in the way they compensate people, and probably in expectations. You may cultivate a client for two or three years before you have the opportunity to write their insurance."
