Banks have the opportunity, but have not yet lived up to their potential, in serving the insurance needs of small businesses.

While some banks have identified small businesses as one of their key market segments, few have implemented an effective plan to tap the market.

This is partly due to the nature of small business owners. They are traditionally immersed in the challenges of building and running their business, and give very little thought beyond the day-to-day details. Insurance, other than liability or property insurance, is not a primary concern.

However, they are ripe candidates for business-continuation insurance products, such as key-person insurance and insurance to fund buy-sell arrangements. As their businesses pass through the survival tests, they then become strong prospects for employee benefit products, such as group carve-out coverage for top earners.

Compounding the pitfalls of banks distributing insurance to small businesses, owners of these businesses see banks as being uninterested in them.

Banks have attempted to market their services to small businesses through "feel good" approaches that promote the bank as having large amounts of capital to lend to small businesses. These campaigns are often unconvincing. Small business owners need capital, but they also need quick response, help in running their business, and products that are designed for them.

We regard insurance as a supplemental product to the small business owner, not as an integral product. Insurance should not spearhead a small business marketing campaign, but it can be a factor that reinforces the bank relationship.

Along with assistance in managing bookkeeping, business planning, key employee compensation, and retirement planning, insurance can be part of the overall package of services that banks offer to help small business owners run their business.

The challenge for the small business relationship manager is to persuade small business owners of their need for certain benefits, such as key employee and business-continuation insurance protection.

One of the keys to distribution of insurance is leveraging existing arrangements which the small business owner may have with the bank.

The IDS Financial Services prototype demonstrates the value of turning a token financial relationship into a full-fledged financial service, product, and strategy program for the small business.

The Minneapolis company begins with the business financial analysis, a planning package that assesses the company's financial situation, estimates key employee value, proposes a business continuation plan, and recommends an employee benefit package.

From there, the IDS financial planner can help develop the financial goals and priorities for the business, with the close support of a small business specialist, and implement a complete action plan that includes all of the IDS proprietary products, including insurance.

IDS has managed to build the perception of a higher level of service, which makes the small business owner more amenable to suggestions for products and upgraded service. Once business owners are convinced that the IDS planner has met their business needs, only then does the planner turn to the more lucrative personal financial plan of the proprietor.

Banks have an inherent advantage over companies like IDS: They are often the first place that small companies receive financial support. One large New York bank's new small business initiative is taking advantage of its relationships.

The small business program highlights retirement plans, insurance and other investments, and closely mirrors the IDS financial planning model. It is gathering leads from customer files and by branch manager referrals.

The new initiative will have financial planners focused exclusively on the small business market, with the bank's separate dedicated life insurance sales force providing support on insurance issues. The program will focus on high-income professional firms, such as law firms and medical practices.

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