Jack Henry & Associates Inc.’s acquisition of Banc Insurance Services Inc., the outsourcing vendor’s first move into insurance, demonstrates that insurance is an increasingly important element for companies hoping to attract bank customers.
Analysts say that several other outsourcing providers for banks also offer insurance services, but that some of these offerings revolve around behind-the-scenes transaction processing, which is closer to their core business. In contrast, Jack Henry is more closely following a retail model in which its customer banks would hawk policies directly to consumers, according to analysts.
Kevin Williams, the chief financial officer of Jack Henry, said the Banc Insurance Services acquisition, announced Wednesday, would allow his customers to offer a new service.
“Some of our larger banks and credit unions are looking to get into the insurance field one way or another, and this is a low-cost venture for them,” he said.
In addition, expanding into the insurance market “adds some diversification, because it also allows us to sell to nontraditional customers,” specifically large banks that would not be the primary candidates for Jack Henry’s processing services, he said.
Clients have developed an interest in insurance over the past few years as they have looked to expand their fee income, Mr. Williams said. Offering insurance gives Jack Henry a competitive advantage, because “anything that we add like this that we can integrate into our core solution will help differentiate our core from other vendors.”
Gary R. Craft, the chief executive of the San Francisco advisory firm Financial DNA LLC, said that other outsourcing firms offer insurance-related services, but those offerings are often in the processing end, which fits more closely with their primary business.
Fiserv Inc., for example, offers health plan administration services for health insurance companies, but it also allows its bank clients to provide property and casualty, life, and flood protection policies to consumers. It expanded its insurance processing operations last week by acquiring Results International Systems Inc., a provider of property and casualty insurance outsourcing services.
Fidelity National Financial Inc. initially made its mark as a title insurance company and has been steadily expanding into financial services processing in the past year. However, it has not made a major effort to offer other types of insurance directly to consumers.
Carmen Effron, the president of the Westport, Conn., bank-insurance consulting firm C.F. Effron Co., said adding insurance was an important move for an outsourcer like John Henry, especially as more banks and credit unions hope to add the capability.
These small financial institutions “look to their suppliers for product innovation and process innovation,” Ms. Effron said. If an outsourcer can provide an additional service — like insurance — that is integrated into its existing platform, that additional service provides an incentive to do more business with that outsourcer.
However, Mr. Craft said the move into insurance was “a stretch” for Jack Henry and may indicate that its core growth opportunities have dried up. Though the Banc Insurance model offered “a nice twist,” he asked, “Does this sort of muddle up the overall strategy for Jack Henry being a core data processor?”
Jack Henry, of Monett, Mo., would not say how much it paid for Banc Insurance, which provides insurance agency services to small banks and credit unions.
Also on Wednesday, Jack Henry announced a plan to expand its payment transaction capabilities; it is acquiring Select Payment Processing Inc. of Irving, Tex., for an undisclosed sum.
The Banc Insurance deal closed Wednesday. The Select Payment one is expected to close within the next several weeks, pending shareholder approval.
Jeffrey Chesky, the president of Banc Insurance, said the acquisition gives his company access to Jack Henry’s roster of more than 5,000 bank and credit union clients.
“Jack Henry provides the technology platform that banks and credit unions operate on every day. Most of that functionally supports deposit and loan activity, but BIS believes that insurance should be a permanent aisle in the store of the bank or the credit union,” he said.
Incorporating Banc Insurance’s turnkey agency model into Jack Henry’s processing platform will “allow the customer to eventually apply for a consumer loan and obtain their insurance in an entirely integrated and seamless transaction,” Mr. Chesky said.
Banc Insurance helps small banks and credit unions form insurance agencies to sell personal lines, property/casualty insurance and other products, and then handles all the back-office operations. By grouping together the agencies of numerous banks, Banc Insurance can provide policies more efficiently than the banks could do on their own, and it can negotiate better deals with carriers.
Founded in 1999, Banc Insurance currently serves 17 bank and credit union clients and can offer insurance in 22 states. With Jack Henry’s financial support, it hopes to evolve into a 50-state operation with over 200 clients within the next few years, he said.
Banc Insurance’s support and back-office functions are currently handled out of a Holyoke, Mass., customer center. The company plans to add another center in California within the next 12 months, Mr. Chesky said — possibly in San Diego, where Jack Henry already has offices.
