National City Seeks More Benefits Firms to Acquire
National City Corp. of Cleveland plans to expand its insurance unit by acquiring employee benefits agencies, largely bypassing the property/casualty ones that other banking companies have been snapping up for the past few years.
Thomas Cook, the president of National City Insurance Group Inc., said it will buy agencies in a dozen cities in its area of operations within the next two years or so.
The initiative is being driven by demand for health insurance by businesses, he said, including small ones that are prospects for high-deductible plans linked with health savings accounts.
“Consumer-directed health care has gotten more momentum,” Mr. Cook said. “We’re seeing corporations putting more ownership for managing an employee’s health-care costs in the hands of that employee.”
National City recently has bought employee benefits businesses in Youngstown, Ohio, and Richland, Mich., and on Jan. 3 it announced that it had acquired the employee benefits business of H.E. Hoffman Group Inc. in St. Louis. The acquisition was National City’s first of an employee benefits firm in a major market.
The company plans to add agencies in Chicago, Louisville, Indianapolis, Detroit, Pittsburgh, Cincinnati, Cleveland, and Columbus, Ohio, Mr. Cook said.
Though National City offers property/casualty insurance, it does not plan to acquire firms, because of the inherent challenges in that business, he said.
The main challenge in the property/casualty business is that fewer carriers are interested in insuring small, less-profitable companies, Mr. Cook said.
“In property/casualty, you have to have a certain scale to have access to a variety of companies,” he said. “It can have a lot of complications in terms of securing coverage and getting value to the customer.”
Kenneth Kehrer, the director of research at Kehrer-Limra in Princeton, N.J, a unit of Limra International Inc., said that focusing on the employee benefits business avoids the customer resentment that may arise from disputed property/casualty claims settlements.
First Niagara Financial Group Inc. is another banking company that has been
Mr. Kehrer said a benefits platform also can fit nicely with a banking company’s other capabilities, including asset management.
Mr. Cook said National City’s initiative “gives us the opportunity to identify other pension management opportunities for the institutional asset management group as well as other third-party providers.”
It also provides National City the opportunity to expand key-executive benefits products and services such as deferred compensation plans, he said; Most of its commercial insurance customers have 50 to 500 employees.
National City will have to look hard to find available companies focused strictly on employee benefits, Mr. Cook said. “There are fewer of them than there are property/casualty agencies. It’s pretty challenging for us to find size and quality.”
He expects such agencies to have prices comparable to property/casualty ones, because their profitability tends to be similar.
National City has been climbing in the insurance brokerage fee income rankings. For the first nine months of last year it reported $52.4 million of such income, making it 13th among banking companies, according to Michael White Associates’ Fee Income Ratings Report.
For the first half of last year it posted $35.3 million of insurance brokerage fee income, making it 15th among banking companies, versus 17th in the first half of 2005, according to the report.
Last year Sky Financial Group Inc. of Bowling Green, Ohio, acquired Lindig Benefit Consultants in Worthington. Sky announced late last month that it had a deal to sell itself to Huntington Bancshares Inc. of Columbus.
