InsurBanc, a thrift co-owned by the trade group for independent insurance agents, opened for business Thursday but will ignore the public for six months.
It will use the time to sign up agents as customers and train them to sell its products.
As users of InsurBancs services, agents will get a comfort level with the bank, its systems, and its products, said Michael W. Herlihy, the thrifts chief executive officer. For its first six months, it will only set up accounts, make loans, and sell CDs to members of the Independent Insurance Agents of America, its co-owner.
Only after that will the associations members be able to refer their customers to the thrift. One thing I would say to an agent if he or she asked me whether they must have an InsurBanc account to make a referral is that it is a much easier and more credible referral if youre doing business with me as well.
As Mr. Herlihy sees it, insurance agents are in the business of winning their customers trust, and the trade group-owned bank gives agents an additional tool to enhance that relationship.
Its charter enables the thrift, which has a brick-and-mortar headquarters in Farmington, Conn., to operate in Connecticut, Massachusetts, and New Jersey, where about 3,000 of the IIAAs 24,000 member agencies are located. The association is waiting to see how successful the thrift is in these three states before deciding whether to move into other states.
Though Mr. Herlihy did not specify how many agents would sign up to market its products, he commented, We have had a very, very strong response from all states, including states that we are not able to do business in. He also saw good demand for our concept in the three states where it will initially operate.
The name of the game in the last 10 years has been diversity and being full-service for your customers, said Robert Rusbuldt, chief executive officer of the IIAA in Alexandria, Va. People dont mention the term insurance too much any more insurance or banking or securities. Its all financial services.
The new thrift is selling checking and savings accounts; home, auto, and business loans; and certificates of deposit over the Internet, through the mail, and on the phone.
Agents must belong to the IIAA in order to use the thrift or to refer customers. Though agents need not have an InsurBanc account to make a referral, Mr. Herlihy said, simply, if youre banking elsewhere and youre telling your clients to bank with me, its a natural issue. If I was a customer, Id ask if my agent was using this bank.
Each agent who wants to make referrals must complete a one-day training program, including information about products, banking regulations, and marketing techniques. Mr. Herlihy said he is not seeking to turn the agents into bankers but to give them a good grounding in the basics of banking regulation.
Agents will collect fees on whatever their customers buy from the thrift. Right now, Mr. Herlihy said, he does not know how many agents intend to sign up to market banking services. We anticipate were going to have a flurry of activity early on, he said, however.
Mr. Herlihy predicted that the thrift will attract a 50-50 mix of personal and small-business clients. I think it will appeal to small businesses, he said, because theyve dealt for years with independent insurance agents for their insurance needs.
He emphasized the longevity of the agent-client relationship as a plus. While the personnel at banks have changed, the personnel at independent agents have remained very static, he said.
InsurBanc got its thrift charter in November. The highest obstacle to getting chartered, Mr. Herlihy said, was the plan to market banking products through independent agencies.
The Office of Thrift Supervision was concerned about compliance monitoring, auditing, and training because the agencies that will market the thrifts products are independent businesses, Mr. Herlihy said. By comparison, thrifts like State Farm Bank that are owned by insurance companies operate through captive agents who are employed directly by the insurance company parent.
The sheer size of the IIAAs membership 300,000 agents working in 24,000 agencies led the OTS to request the rollout in just three states. The membership is an incredibly large potential distribution network, Mr. Herlihy said.
The thrift is owned by the IIAA and W.R. Berkley Corp., an insurance holding company based in Greenwich, Conn., as well as two Berkley subsidiaries, Signet Star Holdings Inc. and Signet Star Reinsurance Co., both of Florham Park, N.J.
The thrift most similar to InsurBanc is Assurance Partners Bank, which was opened last June by the National Association of Mutual Insurance Companies to sell banking products through its members agents. The thrift, based in Carmel, Ind., is now operating in nine states.
David T. Fronek, president of Assurance Partners Bank, said that, though the thrift is growing, were not growing as fast as we had anticipated. He would not specify its asset size.
Mr. Fronek attributed the thrifts slow growth to its difficulty persuading as many agents as it wanted to sell banking products and to a general lack of momentum in the convergence of financial services. For example, he said, many people had predicted more bank-insurance company mergers would have been announced by now. Other insurer-owned thrifts are not growing at the pace they had predicted, he said he has heard from regulators.
However, he said, as more insurance entities like the IIAA get involved in banking, agents attitudes about selling such products will improve as will consumer awareness.
InsurBancs big challenge is to convince their agents that theres money to be made in selling a banking product, said Ronald R. Glancz, a lawyer at Venable, Baetjer, Howard & Civiletti in Washington who specializes in thrift charter applications. Agents are much better than bankers at being able to sell products, they are born salespeople. If you can sell them, then theyll be successful in selling the products.
Though the IIAA has the resources to build a successful thrift, limiting the charter to three states shows a little healthy skepticism on the part of the regulators in terms of how all this is going to work, Mr. Glancz said. Cross-selling makes good sense, but it doesnt always work.
At the same time, InsurBancs sales force of independent agents must be careful to give the required disclosures about the products they sell. The secret here is a very, very good compliance program, he said.
Michael White, president of the Radnor, Pa., consulting firm Michael White Associates, said it was smart of InsurBanc to plan to start out by selling to agents. If you want to enroll [agents] as proponents of the bank, sell them on the bank itself, he said.
Carmen Effron, president of C.F. Effron Co., a consulting firm in Westport, Conn., said it is standard at banks, when a new insurance program is begun, to start by selling to employees.
However, InsurBanc may face challenges that other insurance entity-owned thrifts do not.
Because they are dealing with independent agencies, theres not a centralized, consolidated distribution channel, Mr. White said, making it more difficult for the thrift to disseminate information and control the way the products are marketed.
Is it viable? It remains to be seen, Ms. Effron said.
We really dont have any models that say the insurance agent can sell a banking product. But we have some models that say a banking person can sell insurance, so its not too far-fetched to say the opposite can happen.
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