When Brian Robinson began as a State Farm Insurance agent, he spent most of his time helping Chicago-area policyholders whose homes had burned to get reimbursements and temporary housing.

After seven years as a fire claims representative, he decided to open his own State Farm agency in Normal, Ill., a suburb of Bloomington, and learned how to offer auto, homeowners, and other insurance lines. Little did he know when he set up shop four years ago that one day he would be selling products that are not insurance-related at all — loans and deposit accounts.

“I was expecting moderate response when I started offering banking products, but it’s been overwhelming,” he said.

Among the nonbank companies that American Banker has branded “New Bankers,” State Farm’s entry into the banking business is among the most logical. After all, most traditional banks are working hard to get their share of the insurance business. But some observers question State Farm’s banking endeavors, especially its online approach.

State Farm got federal approval to operate a savings and loan in November 1998 and quickly leapt into the banking business, opening an Internet-based institution, State Farm Bank, in Bloomington. The company’s expertise is in insurance; commercial banking is an entirely new field for it and most of its employees.

As soon as State Farm was cleared to offer banking products, it started training 1,300 agents in Illinois and Missouri to sell checking and savings accounts, home-equity loans and lines of credit, auto loans, and mortgages.

About 500 agents in New Mexico, Arizona, and Nevada have also gone through the training. State Farm now is offering training to 1,568 agents in Alabama, Colorado, Indiana, Mississippi, Utah, and Wyoming, and it hopes to have trained agents nationwide in two years.

Mr. Robinson was part of the first wave of trainees. “When I found out that I could train to offer these products, I immediately said, ‘Let’s do it,’ ” he said. “I’m in the relationship business, and if people trust me with one thing, they’ll trust me with other financial services. So it made plenty of sense to get trained.”

During the full-day training session, participants do role-playing exercises, pretending to be the customer or the salesperson. They are taught about the products and how to handle the paperwork and follow-up sessions with customers.

Another agent, Rick McLean of Bloomington, said he and his classmates were buzzing after the training about how interesting it had been. “We all know how boring some of these sessions can be — they can be brutal,” he said. “But they kept it interactive.”

As State Farm has trained more agents, State Farm Bank has grown commensurately. Stan Ommen, the bank’s president, said it has $200 million of deposits and $160 million of loans.

“The challenge is to get people to bank at an insurance agency,” he said. “I believe that the trust the agent has with policyholders is very good. The agent lives and works in the community. That’s a big advantage if you want someone to keep their money with you.”

The bank is in the midst of a national advertising campaign, as the insurance giant with 80,000 employees nationwide tries to revise its image as a financial service company, Mr. Ommen said. The campaign includes mass mailings, banner ads on Internet sites, ads in magazines, posters inside agencies, and television and radio commercials, he said.

The mass mailings were a big hit for Mr. Robinson, who said he sent postcards to all his roughly 1,000 clients. About 10% responded with inquiries about banking products.

“I’d say nearly 65% of those who reacted to the postcard got some sort of banking product immediately,” Mr. Robinson said. “It was mostly checking and savings accounts to start, but all the lines have followed. Now I am planning another direct marketing campaign, asking people to think of us when they need a home equity loan. Don’t leave me out as an option; that’s all I ask them.”

Mr. McLean said he is not as aggressive in marketing banking products. He sent postcards to his 2,300 clients but said he would not raise the subject with customers again until they come to him to renew their policies. He said his agency will always make the bulk of its money in insurance.

“I would say as far as compensation is concerned that between 1% and 2% of it comes from the bank products,” Mr. McLean said. “If we speak generally as an agency, there will be those agencies that hire a full-time person to handle only banking products. Even then, if that agency could get to 10% of its compensation through banking, they should be thrilled.”

Of course, State Farm Bank faces challenges if it wants to be taken seriously. It does not plan to open branches, and its only automated teller machines are in the insurer’s regional offices. A customer who wants to make a deposit must do so through direct deposit, wire transfer, or by mail to a central processing office.

“Mailing a check, that’s an obstacle,” Mr. McLean said.

A bigger challenge is getting people to use a bank without branches, he said. “We have to hope that people overcome that, and the older the client, the more difficult it is going to be to get them to overcome it.”

James Overholt, a senior consultant and manager of financial services programs for Milliman & Robertson Inc. in Chicago, said that State Farm, as an Internet-only bank, should not expect an avalanche of customers.

“It’s pretty slow even for a bank with branches in place to support a Web site,” he said. “If it’s a tough sell for those that make a Web site an ancillary service, it’s even tougher for a company like State Farm which is stand-alone.”

State Farm’s brand name is an advantage in attracting customers, Mr. Overholt said, but is also an important brand to protect.

“The public will take notice because it’s State Farm,” he said. “They seem to have a good relationship with their clients, and that’s a big thing. However, they have to be very careful not to stumble and hurt that name. If they mess up with the bank, they’ll hurt other parts of their business as well.”

Though State Farm agencies dot the landscape, these offices do not offer the same banking services found in regular bank branches, Mr. Overholt pointed out, and this will hurt State Farm’s efforts to augment its commercial accounts.

“What is a small business going to do?” he asked. “If they get a $100 check from someone, they want to deposit it immediately, and they want credit for it immediately, not two weeks later. They aren’t going to mail checks out and wait for” them to clear.

Mr. Ommen said State Farm Bank targets retail customers, not small businesses. “The way we’re structured makes it difficult to have small-business accounts,” he said. “But we’re hopeful that down the road we’ll figure something out.”

State Farm reimburses customers for ATM fees of up to $1.50 per transaction for five transactions per month, Mr. Ommen said. If a customer visits ATMs more frequently, or the surcharge is more than $1.50, the customer pays the difference.

A study of 3,780 people nationwide last year by Consumer Financial Decisions Group of Princeton, N.J., found that the average consumer uses an ATM three times a month.

However, Chris Taylor, a senior research analyst at Consumer Financial Decisions, said that number will probably be found to have risen when the group’s latest study concludes next month. “With the economy moving along, people are doing more spending and making more transactions,” he said. “Of course, people can use their debit cards without going to an ATM. You don’t need money in your pocket.”

Bankers are watching the moves by State Farm, and by other insurers trying to enter the market.

Bob Wingert, executive director of the Community Bankers Association of Illinois in Springfield, said that the jury is still out “on how effective State Farm will be in banking, but they are large and have so many agents in the field, we have to pay attention.”

However, many State Farm agents “still look at themselves as insurance experts, not bankers,” he said.


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