The Hartford, one of the nation's largest insurance companies, is planning a major push to market automobile insurance through banks and mortgage companies.
The $108.8 billion-asset company, which started setting up selling agreements with banks last summer, plans to mail promotional material to seven million bank customers throughout this year.
Banks such as BankAmerica Corp. and National City Corp., as well as the mortgage company Countrywide Credit Industries, have already passed on their customer lists to the insurance giant in exchange for a cut of the revenues.
The Hartford's effort is expected to be closely watched by other banks searching for ways to fit insurance into their product lines. Because consumers are generally required by law to carry auto insurance, the policies are seen as a relatively easy sell for banks.
Many bankers therefore view automobile insurance as a test product that will help them gauge their potential in the insurance market overall.
"It's the cornerstone of insurance in a bank," said Nata Munk, a vice president in charge of Cleveland-based National City's program. If banks can't make it in the auto insurance business, she said, they stand little chance of selling more-complicated and more-lucrative life policies.
In the auto arena, The Hartford plans to do all the work for banks, from sending out marketing materials to taking customers' calls to processing their claims. The company also plans to cross-sell homeowner's insurance to customers who purchase automobile policies.
"It allows the bank to get into the insurance business with little to no investment," said Robert J. Smith, The Hartford's director of business development for financial institutions.
The Hartford is no stranger to banks. It has been the leading seller of variable annuities through banks for four years. And the company's life insurance subsidiary is planning to work with bank trust departments soon.
But like other insurers in the property-and-casualty business, Hartford is now struggling to find new areas of distribution. A spate of hurricanes and other natural disasters have forced insurers to pay more claims than they had planned, driving down earnings.
Historically, insurers such as The Hartford have sold automobile insurance through an independent agency force, but that marketplace has proven very costly. Mr. Smith said an insurance agency, which has a clerical staff, rent to pay and other expenses, generally takes a commission of roughly 15% to 20%. But The Hartford's bank clients are getting only 3% to 3.5% in commissions.
Moreover, agents do little to proactively market their services, experts said.
"People come to him because they see an ad in the phone book," said Kenneth Kehrer, an insurance consultant in Princeton, N.J. "He's sitting around in his office, and that's not efficient."
While The Hartford is bent on selling its wares through banks and affinity groups, it still pushes its products through more than 4,000 agents. Those agents are not likely to take too kindly to the company's plan to sell auto policies at banks.
"Every policy a bank sells will take money out of the pocket of the independent agent," Mr. Kehrer said.
The problem is especially acute when it comes to automobile and homeowner's insurance, Mr. Kehrer explained. An agent who sells these types of policies reaps the benefits of renewals more often than a life insurance agent does. That's because people generally change homes every seven years and change cars every three to four years, the consultant said.
But Mr. Smith said The Hartford has been straddling both the agency marketplace and the direct market for a long time without too many problems. The company has sold products directly to customers since 1984 through a special program it has with the American Association of Retired Persons.
Of Hartford's $1.9 billion in premiums from individuals last year, 36% was generated by agents. The rest came from the company's program with the AARP.
Mr. Smith estimated The Hartford's agency force generated between $700 million and $800 million in premiums last year. He expects banks to be contributing $500 million in annual sales in five years' time.