Several companies have been formed to offer insurance outsourcing services to banks, but InBank Services LLC is taking the opposite route - this newly formed company hopes to supply insurers the means to offer private-label bank products.
"If you look at the insurance company banks out there, only a few are successful. The rest are struggling financially," said J.W. Coyne, InBank's founder and chief executive officer. InBank, he said, will enable insurers to offer all the banking services they want to make available to their customers - without any large capital outlay, higher level of risk, or increased regulatory scrutiny.
"It gives an insurance company a chance to appear more like a full-service financial services company, without having to take the time and expense," he said.
Many insurers acquired thrift charters in the late '90s, and some of the largest carriers - such as State Farm and Allstate Corp. - have gathered impressive asset totals by selling banking services to customers, even without having brick-and-mortar branches to do it in. MetLife Inc., by contrast, bought an actual bank in New Jersey and turned it into a $2.5 billion-asset entity.
But for most small insurers, even with a thrift charter, offering banking services can be expensive and resource-consuming.
Mr. Coyne said he knows these difficulties firsthand, having spent 18 years as executive vice president and chief operating officer of one of the few small insurers that has been successful in the banking arena, Acacia Life Insurance Co. The Bethesda, Md., life insurer formed Acacia Federal Savings Bank in 1984, a one-branch thrift in Falls Church, Va., that now has $934 million of assets.
InBank is in Alexandria, Va., now but is looking for permanent offices elsewhere in the Washington area.
A key component of InBank's offerings is training for an insurance company's agent staff, Mr. Coyne said.
He said he has "spent an awful lot of time with insurance agents over the past 18 years" at Acacia, knows how the field offices work, and what agents need to help them cross-sell.
InBank intends to spend a lot of time with its customers' agents, he said, visiting them at least once a month and teaching them how to translate a simple certificate of deposit sale into further cross-selling opportunities. In addition the company will help train agents and insurers how to market their banking products to attract new customers into their offices.
The company intends to offer a full range of banking products such as CDs, money market accounts, credit cards, and loans.
"We're doing everything that most insurance companies want when they start or buy a bank," he said. Unfortunately, he added, many insurers interested in banking don't understand the downside of going it alone.
Most find "it's easy to get deposits through insurance agents but you can't generate assets or loans. You get one side of the balance sheet," he said.
InBank, which opened its doors in early October, has no clients yet, though Mr. Coyne said it has had some promising conversations with insurers. It has a Web site up and running, and an insurer that wants to use the company's services could have a private-label site operational within 90 days.
The company has an operational affiliation with Affinity Financial Corp. an Irvine, Calif., company that offers private-label banking services to employers and affinity groups. Affinity is owned by the privately held Waterfield Group Inc. of Fort Wayne, Ind.
InBank supplies the technology and training and is to take a licensing fee from its insurer clients, and Affinity would handle the back-office processing and actually take the deposits and underwrite the loans. Insurers do not need to have a thrift or bank charter to work with InBank, Mr. Coyne said. The insurers will retain ownership of the customers.
For now InBank is looking to attract small life insurance companies as customers, Mr. Coyne said. But it hopes to target property/casualty companies in the future. "They have a different structure, but they're the ones that are competing with Allstate and State Farm, so I think there'll be a market there," he said. In addition, InBank sees an opportunity to sell its services to some mutual fund companies.
It has also been talking with companies that sell services to insurance companies, such as data services, about potentially developing joint products or doing joint sales calls, Mr. Coyne said.
Craig Whitehead, a senior consultant at Milliman USA, said he knows of no other company that is offering this kind of service to insurers. "If it's true that clients tend to want things in one place, centered around where they get their advice, this makes as much sense as selling insurance through a bank," he said.
Making such a model work will entail, first of all, building the infrastructure, he said, but also committing the time to training agents and their clients about these new offerings, he said. "Customers have to learn how to use the new capability," he said.
Mr. Whitehead compared insurers' offering banking services to banks' offering annuities, something that took a long time to get off the ground. "If there are limited early sales I wouldn't read that as a negative," he said.
Starting with certificates of deposit makes a lot of sense, he said, because of the obvious tie-in with the sort of insurance and investment products life insurers currently offer. However, Mr. Whitehead said, it will be important for the carriers to figure out how to compensate their agents for selling bank products in a way that will motivate them.
