Illinois community bankers aren't quite ready to take the plunge into the insurance business.
Though the state's large banks seem ready to embrace a new state law that allows banks to sell insurance, smaller banks seem to be taking their time to decide whether they belong in the business.
"We've had some preliminary discussions, but we're being pretty cautious," said R. Scott Grigsby, chairman and president of Union Bancorp, Ottawa, Ill. "I want to see how it's going to blend in with the organization."
Union, like other community banking companies, has formed a committee to map out strategies-a process that will take months.
The $610 million-asset company was among dozens represented at a recent seminar on the new law. Bankers there generally expressed a reluctance to move quickly.
Mr. Grigsby said that Union would prefer, if it decides to get into the business, to do so by purchasing an agency and running it as a subsidiary.
The insurance law, which takes effect Oct. 1, will let all banks become licensed to sell insurance. Very few restrictions will apply to banks with less than $100 million of assets.
The Illinois law is among nine liberal state bank insurance measures passed since March 1996, after the Supreme Court said national banks could sell insurance from small towns.
South Holland (Ill.) Trust and Savings Bank, which has $550 million of assets, is among the small banks considering whether to start agencies, said Charles Waterman, the bank's chairman and chief executive officer.
Some other Illinois banks have already decided that doing so would cost too much.
Arthur Wilkinson, chief executive officer of State Bank of Bement, said buying a local insurance agency would cost less, because his staff lacks insurance expertise. Mr. Wilkinson said he has his sights set on an agency but hasn't yet approached the owner.
Community bankers are smart to be cautious about entering the business, according to James E. Tait, an insurance industry consultant at Johnson Lambert & Tait in Chicago. He warned that consolidation in the insurance industry has driven up prices for acquisition targets, and that the agencies may not be as profitable as banks would hope.
"Many bankers are rushing into an acquisition to be in the distribution channel, but the risk is not considered as well as it ought to be," he said.
Mr. Tait said bank profits in insurance are limited if the bank does not underwrite its own policies, and "most bankers don't have an appetite for underwriting."
Bankers in other states, such as Michigan, who have been selling insurance for a couple of years have been disappointed, Mr. Tait said. "Michigan doesn't seem like it's been all that successful," he said.
Still, some Illinois community bankers already selling insurance under rulings from the Office of the Comptroller of the Currency said they're glad they got into the business.
Joe R. Kessler, president of First National Bank and Trust Co. in Carbondale, said having a branch in a town with fewer than 5,000 residents let the $220 million-asset bank buy an insurance agency a few months ago. The Comptroller's Office allows national banks with presences in such small towns to sell insurance.
"Now we're looking at serving all our customers' financial services needs," said Mr. Kessler at an insurance sales workshop in Chicago last week.
He said he expects the bank's insurance agency to earn at least a 15% return this year.
