INDIAN WELLS, CALIF. — Once upon a time -- all of three years ago -- the American financial services industry was dead certain that Europe’s bancassurance business model was about to become the next big thing.

But those days are gone.

At the Financial Institutions Insurance Association’s spring conference here, attendees made clear how much the outlook has changed since 1998 when Travelers Group announced its intention to buy Citicorp and create Citigroup Inc.

Indeed, long-time bancassurance experts on hand for the conference say they have so much ratcheted down their expectations that they now believe the main opportunity for insurance products in the banking channel is none other than … the stock market downturn.

“No other bank or insurer followed its lead,” said Robert P. Hartwig, vice president and chief economist at the Insurance Information Institute in New York. “We thought it was going to be ‘Temptation Island’ — all those banks out there with those sexy insurance companies. But most of the merger and acquisition activity that took place has been between banks and insurance agencies, and there hasn’t been that much there.”

Mr. Hartwig blamed insurers’ low returns on equity, as well as regulatory uncertainty. “Why marry someone that would bring down your ROE?” he asked.

Fred C. Dent Jr., chairman of the Financial Management Services consulting firm in Baton Rouge, La., said that because insurance hedges against loss, it has historically benefited from stock market uncertainty.

In this he agreed with heads of bank insurance sales at several large banks and insurers, several of whom noted that banks are using the market downturn as a reason to expand in insurance, because it generates fee income. “Both banks and insurers are in the business of selling money,” Mr. Dent said. “They’re motivated by fee income.”

But whether banks that have dragged their heels can get into bancassurance fast enough to capitalize on current conditions is another matter.

“Now, with the market changing, those banks that held back from getting into insurance want it immediately,” said Karen E. Davis, vice president of insurance at the Missouri Bankers Association. “Banks are losing their deposit dollars, because all their clients’ brokers are telling them this market is a buying opportunity.”

Even with the market retrenchment, there is plenty of insurance business for banks, conference attendees said.

One opportunity, Mr. Dent said, is health insurance. He pointed out that 55% of small businesses lack it — and premiums are going up.

Mr. Hartwig cited auto and homeowners insurance. This year auto sales and housing starts are both expected to be at the third-highest levels ever, he said. “Cars are still being sold and houses built — luxury homes at that — and both will need to be insured.”

Felice L. Larmer, president and chief executive officer of FirstMerit Investment Services, a unit of the FirstMerit Corp. bank holding company in Akron, Ohio, said that Gramm-Leach-Bliley has ironically made it harder for banks to sell insurance.

“The bill has added privacy and disclosure issues to the mix — issues that weren’t there before,” she said.

Robert K. Gallmann Jr., president of the National Institute of Financial Services, said that this is “a telling period for banks serious about their insurance business.” Mr. Gallmann, whose bank consulting and outsourcing firm is based in Harrisburg, Pa., distinguished between banks that are “in it because their customers demanded it” and those with merely “a passive interest — who came in because their competition was offering insurance.”

Matt Essieh, the president and CEO of EAI Information Systems, a Beaverton, Ore., provider of back-office bank insurance technology, said banks know they must find and provide products — from insurance to annuities to mutual funds — that cover all of a client’s financial needs.

“Getting there is the challenge,” Mr. Essieh said. Technology is making it easier for banks to get into selling insurance, he said, but “someone has to lead them, to bring them along."

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