Rather than pay inflated prices to buy an insurance agency, a small Massachusetts thrift holding company is building its own.
Robert F. Stoico, the chief executive officer of $1.4 billion-asset Firstfed America Bancorp in Swansea, said he had a case of sticker shock when he began to shop for an agency.
"I had one agent ask for four times commissions," Mr. Stoico said. "The kind of numbers they had in mind for their agencies were more than we were willing to pay."
So Mr. Stoico and other officers decided to take what's become an unusual step for a small banking company - to build an insurance sales effort from scratch.
In January, Firstfed America hired Robert J. Hole and David A. Galvin, both vice presidents at Braman & White, a Middletown, R.I.-based agency. The thrift company also secured licenses to sell insurance through its 14 branches in southeastern Massachusetts and Rhode Island.
A month later the two co-managers, who also act as agents, hired two agents from an insurance company and an administrative worker. Sales started quickly and, according to Firstfed America filings, Firstfed Insurance Agency earned $107,000 in commissions during the second quarter.
Out of the gate, that's an impressive figure for a smaller banking company, said Carmen F. Effron, a Westport, Conn.-based consultant. She said Firstfed America's move to build its own agency "is a great counterbalance to going out and buying an agency."
According to the Association of Banks in Insurance, the number of banking companies getting into insurance through start-ups has shrunk in the last several years, with more banks favoring partnerships or agency acquisitions.
A start-up presents a variety of challenges, including developing relationships with insurers and building processing and administrative systems. But Mr. Stoico said he believes Firstfed America had a jump- start because it has 400 employees who potentially could market insurance.
"You've got that to start with and then you've got all the customers to sell to," Mr. Stoico said.
And there are benefits to not buying an agency, Mr. Galvin said. The unit can grow steadily, without any cultural problems caused by forcing agents into a new structure. Already, Mr. Galvin and Mr. Hole have leveraged their experience to put together a menu of products from companies like Travelers, Unum/Provident, Lincoln Benefit Life Co., Savings Bank Life Insurance Co. of Massachusetts, and several others.
The agency is promoting its services through branch display centers, statement stuffers, and direct mail, Mr. Galvin said. It will also advertise along with underwriters. As the program grows, it will license 10 more branch workers in addition to the 15 already licensed to sell primarily life insurance, Mr. Galvin said.
Later another dedicated agent will be added to the program. Firstfed America pays agents using a combination of an agency model and its own pay model, Mr. Galvin said.
Unlike an acquisition, where cultures have to adapt rapidly, building an agency affords more time to introduce bankers to insurance, Mr. Galvin said.
"One of our first goals is to make sure that everybody knows who we are, what products we're selling, and how the customer can access the products," Mr. Galvin said. Previous bank insurance efforts have taught bank management that they need to be committed to insurance, he said.
As an initiator of the move, Mr. Stoico is dedicated, Mr. Galvin said. Mr. Galvin said he thinks the move to build was appropriate for Firstfed America. But, he added, "we'll see if that's a good strategy long- term."