Community bankers interested in selling insurance can make more money teaming up with an agency than buying one or starting from scratch, an insurance consultant says.

Joint ventures offer the typical bank a 66% return over 10 years, versus a 27% return buying an agency, Paul Buse told industry executives at the American Bankers Association convention here.

"You can get a substantial return on investments from joint ventures," said Mr. Buse, vice president of Risk Management Services. "You don't have to bring much in terms of money. What you bring is your real assets-your customers."

Still, Mr. Buse warned that selling insurance may not add as much to the bottom line as most bankers expect. After-tax profits for the typical bank entering the business will rise by less than 6%, Mr. Buse said. "Per dollar coming in, this is less profitable than what you are doing now," he said. "But what you are doing now is much more capital-intensive."

Industry officials said they were not surprised by the small addition to profits from insurance sales. "These numbers are higher than I thought they would be," said William Y. Carroll Sr., president and chief executive of Citizens National Bank, Sevierville, Tenn. "The insurance business is not that profitable."

Andrew E. Mance, a director at First United National Bank and Trust Co., Oakland, Md., said banks that decide to sell insurance risk losing some of their best customers-insurance agents.

"You are injuring your customer base by selling insurance," he said. "You are going to lose."

So why offer insurance at all? Mr. Buse said insurance sales are a great way to earn fee income without having to tie up much capital.

To support his claims, Mr. Buse analyzed the financial impact of a $100 million-asset bank entering the insurance business. The institution serves 5,000 households and 750 businesses, and earns $1.25 million in profits.

A bank should be able to sell insurance to 10% of its customers, he said, although he noted that banks with more than $1 billion of assets may have lower penetration rates.

A $100 million bank would earn $16,000 selling annuities, $24,000 from life insurance, $12,000 from personal property and casualty coverage, $7,000 from commercial property and liability, and $12,000 from health and disability policies used in employee benefit packages, he said. That represents $71,000 in after-tax profits from $343,000 in commissions.

Mr. Buse added that banks might boost earnings significantly if they entered niche markets, such as crop insurance, title insurance, car warranties, and mortgage insurance. "You need to recognize that there are a lot of areas people don't think about that have significant profit potential," he said.

But he warned bankers to check with lawyers first, noting that some courts have barred banks from offering these products.

Mr. Buse cautioned bankers against entering the insurance business de novo. Start-up costs, including salaries, cannot be recouped within five years, he said.

"If you start a firm from scratch, you won't have any revenue on the first day, and not much in the first year," he said. "It only works if you are a really large bank."

Mr. Buse's firm is preparing the first joint survey of bankers and insurance agents. The poll, commissioned by the ABA and the Independent Insurance Agents of America, is expected to be released Nov. 1.

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