A small bank in southwestern Oklahoma has teamed with a new alternative distribution company to sell insurance products.
First State Bank of Altus is the first bank to sign up with KIMG Management Group of Mesa, Ariz.
KIMG and its partners - including Frenkel & Co., which provides access to underwriters such as Hartford and American International Group-will provide telephone support and Web services to handle the bulk of sales. KIMG said it will post one or two employees in each institution to handle the estimated 20% of cases that require hands-on help.
A bank signing on to the program must buy KIMG preferred stock, at a 5% discount, equal to 25 basis points of the signing institution's assets. Bank clients would keep 30% of their insurance revenues; the rest would go to KIMG.
First State Bank's president, Paul Doughty, said the deal lets the $75 million-asset bank get into the business without huge expenditures. "I have been looking really hard to find a way to deliver more financial products," he said.
First State had used Investment Centers of America for investment product and limited insurance sales.
As industry consolidation has produced behemoths such as Citigroup that are capable of offering a wide range of products, it has become important for community banks to get into the game, Mr. Doughty said.
"All of a sudden, everybody's in our business and we're still playing by the (formal) rules," he said.
Banks are competing not just with one another, but also with insurance companies, credit unions, and brokerages, Mr. Doughty said. Teaming with KIMG made also made sense, he said, because "I don't know how to compete with insurance companies or credit unions that have tax advantages."
KIMG is reaping the benefits of "pent-up demand" for insurance services, Mr. Doughty said. He said several Oklahoma banks are signing up and that more than a dozen in Georgia are about to sign on.
KIMG estimates that by October it will have 200 of the 8,900 community and rural banks it is targeting as clients, said James B. Pugh, the president and CEO of KIMG. By the end of next year it expects that 1,600 banks will be signed up.
"That's pretty ambitious," said Kenneth Kehrer, a Princeton, N.J.-based consultant. "One challenge they really have is the logistics of signing up the banks," he said.
First National Bank in Midwest City, Okla., listened to KIMG's pitch two weeks ago, but bank executives plan to take their time in making a decision.
"A bank shouldn't rush into a relationship like this in less than six months to a year," said Robert H. Croak, chairman of the $280 million-asset bank.
Mr. Croak said the pitch he received did not promise much on-site help from KIMG. He said he is also talking with local agencies that might provide better on-site assistance.
Mr. Kehrer said KIMG faces a challenge in serving customers at smaller banks. Even though some insurance products can be successfully sold over the phone, others such as commercial insurance require face-to-face meetings - a labor-intensive process at a bank with a small base of commercial accounts.
First National's Mr. Croak also bristles at the suggestion of what he calls a "significant" investment in KIMG stock. "If I wanted to be in the insurance business, I'd go out and buy an insurance agency," he said.
KIMG's Mr. Pugh said the investment is another way of allowing bank clients to share in profitability by giving them an asset on the books. And KIMG's plans go beyond on-site sales.
When it has more than one or two bank clients per state, KIMG will have the mass and geographic footprint to unveil a Web sales site tailored to bank insurance and mortgage sales, he said. By matching ZIP codes, the site will provide quotes from banks near visitors to the site, he said.
A customer accepting a quote would be automatically scheduled to visit the branch near them, Mr. Pugh said.
"The bank has the opportunity to have the consumer driven back to the bank," he said.
Mr. Pugh said it will be a financial supermarket with strong customer support from underwriter partners and its own employees. KIMG will open a call center by yearend in Altus, he said.
When he and his colleagues, most of whom are professors with business backgrounds, began planning the company five years ago, the idea was "getting started on the next generation of financial institutions."
Mr. Doughty, who just shifted First State's 45 employees to a KIMG-sold health plan from a Fidelity Securities program, says he thinks the distributor - including becoming a one-stop financial supermarket.
"I would like to have a bank that looks like Kinko's-you know, they have paper clips and anything that deals with office products," he said.
