The relatively small participation in insurance sales by banks with less than $1 billion of assets shows surprising persistence, according to the author of the American Bankers Insurance Association’s annual study of banks in insurance.
“We expected to see the gap closing,” said James Campbell, a senior vice president at Reagan Consulting in Atlanta and author of the study. “The gap is wider than we have ever seen.” He attributed the discrepancy to a realization that “this is a business where volume matters. Banks enter with a certain amount of critical mass,” and many have to look to acquisitions.
Mr. Campbell said that participation in general insurance distribution, which includes property, casualty, health, and life insurance products, is rising among banks with more than $1 billion of assets. The study found that 86.2% of midsize banks, those with assets of $1 billion to $10 billion, participated in insurance sales, and 86.4% of larger banks did so.
Banks with assets of less than $1 billion, however, had only a 25.5% participation rate in general insurance.
Bank-sold insurance premium, including that for annuities, rose to an estimated $78.1 billion last year, a 12.4% increase from the year earlier, according to the study. That growth rate was the smallest in five years, the study said.
“We saw slower growth in annuity sales,” said Mr. Campbell, who noted that nearly two-thirds of bank-sold premium, or an estimated $51.6 billion, was for annuities.
“Last year was not a year conducive to variable annuity sales,” he said. Overall annuity sales growth was just 8.2% last year, he said.
Commercial lines premium grew 23.5%, to $14.2 billion; individual life and health premium 29.1%, to $3.6 billion; and personal property and casualty 26.7%, to $6.3 billion.
Acquisitions drove much of the industry’s growth, the study said, and continue to do so, Mr. Campbell said.
“Larger banks have to buy larger agencies” to stay competitive, Mr. Campbell said, and he added that agency deals continue to be a good move for banks. Of the 391 banks in the survey, 49 had made at least one agency purchase last year, he said, and 89% of the 49 planned further purchases.
“It’s a good source of noninterest income, and we see a growing number of banks doing well,” he said.
The study found that for the 28 banks identified as bank-insurance sales leaders, the contribution to noninterest income was 5%, with a range of 2.6% for banks with more than $10 billion of assets to 7.9% for those below. In the top quartile, general insurance distribution contributes 13.9% of the bank’s total noninterest income.
Though insurance agencies are a good complement to banks’ core business, Mr. Campbell said, they should view their agencies as stand-alone businesses.
