Old National Bancorp of Evansville, Ind., says a commercial agency it agreed this week to buy will be the centerpiece of its insurance efforts.
Though the banking company has been in the insurance business for seven years, and owns six agencies, it lacks the centralized leadership and commercial insurance expertise it wants Sycamore Agency Inc. of Terre Haute to provide.
Old National had "bought the train, but they didn't have the engine," said Donald W. Scott, Sycamore's president. "I feel we're the engine that will run the business for them."
The stock-swap deal was announced Tuesday, but the companies refused to release financial details. The sale is to close by yearend.
Old National's agencies now offer property and casualty, life, and health coverage, but "our object is to be able to provide a broader range of insurance products to both [bank] customers and nonbank customers throughout our franchise," said John Poelker, the banking company's chief financial officer.
Mr. Poelker said the main goal now is to build commercial property and casualty sales - "we think it's an area where there's great synergy and opportunity" - with personal lines as a bonus.
Sycamore is a commercial agency with 39 employees.
Mr. Scott said he turned aside overtures from an Old National competitor - CNB Bancshares, which Fifth Third Bancorp of Cincinnati is buying - because Sycamore could not have taken a leadership role in CNB's more established program.
But Old National's agencies have been run independently, with "no strong connection" to the bank, said Wayne F. Henning, an Old National Bank executive vice president who is also president of the company's insurance division, ONB Insurance Group.
Mr. Poelker said the agencies were run so independently that could not provide traditional profitability ratios, such as return on investment and return on equity. "We are really at a stage where we have not established a good accounting method," he said.
Old National wants to change that - and diversify its revenue sources.
"We're a bank holding company that has traditionally generated the bulk of our profits through traditional means," Mr. Poelker said. For instance, just 20% of revenue came from non-interest-margin sources during the first three quarters of this year, and most of that was from trust activities, he said.
"We recognized that we needed to look at other revenue sources, and insurance sort of popped to the top of the list," he said.
Sycamore's servicing costs are lower than those of 97% of the nation's insurance agencies, and the agency is in the top 6% in financial stability, said John M. Wepler, a principal at Marsh, Berry & Co., the Concord, Ohio, firm that helped put the deal together. The growth-oriented agency represented a good prospect for the bank, Mr. Wepler said.
Since Mr. Henning added insurance to his duties in August 1998, he has taken steps to improve insurance sales. Bank branches now have banners proclaiming the availability of insurance. And to improve cross-sales to commercial loan customers, one of the bank's 10 dedicated insurance agents was moved into the loan department; that step alone added about $1.5 million in premium sales there this year, Mr. Henning said.
Also, the bank has trained 70 bankers to sell auto, homeowners, and term life insurance.