Next month the Japanese-owned United California Bank will start referring customers to Aon Corp., the world's second-largest insurance broker, for property-casualty insurance - and to a third-party marketer for term life policies.

Gene A. Blinde, the head of the Los Angeles bank's retail banking group, said last week that United California chose Chicago-based Aon for flexibility and because it could handle a lot of customers.

The bank, created last month by the merger of Sanwa Bank California and Tokai Bank California, has $11 billion of assets and 115 branches. That puts it in an "uncomfortable middle territory" - too large to function like a community bank but not big enough to be a major regional - Mr. Blinde said.

"We see how other banks do insurance, and we recognize that insurance is a financial product that complements what we do when we make a loan," he said. But United California was not interested in buying an agency, Mr. Blinde said - because of the cost and because "we didn't want to fit into somebody else's box."

Aon will provide property-casualty insurance to United California customers through three channels:

  • Individual customers for home and vehicle insurance will be referred to its AIS Insurance agency.
  • Small-business products such as business owners insurance, commercial auto, workers' compensation, and professional liability coverage for small commercial clients will be referred to Aon Enterprise.
  • Aon Corp. itself will underwrite and broker work site benefit products.

The alliance is being coordinated by the Aon Financial Institution Alliance, a unit created in the fourth quarter to forge referral alliances with banks, coordinate existing relationships with banks, and help Aon become more visible through such alliances.The formation of United California was part of the merger of three Japanese banking companies - the parent Sanwa Bank Ltd. and Tokai Bank Ltd. plus Toyo Trust and Banking Co. Ltd. The three merged in April to form a $780 billion-asset holding company, UFJ Holdings Inc. (In Japan, the Sanwa and Tokai commercial banks are to merge early next year.)
Mr. Blinde, who is a senior vice president, worked at Sanwa Bank California. He said Sanwa had been talking for a year about offering insurance, and had agreed earlier this summer to the alliance with Aon - but put off announcing the plan until United California was formed.

For term life, United California customers will be referred to the call center at Insurance Central, an affiliate of the third-party marketer Association Group Insurance Administrators of Carpinteria, Calif.

United California already sells annuities - Mr. Blinde declined to say how much if them - through licensed reps in the branches. It does not plan to provide financial incentives for employees to make referrals, he said, but he did not rule that out.

He said he plans to expand the insurance line by adding long-term-care as well as more commercial products; he would not say which.

Two community banking companies, Admiralty Bancorp of Palm Beach, Fla., and Yardville National Bancorp of Mercerville, N.J., and giant Bank of America Corp. have also announced agency referral alliances in recent months. Bank of America's, with Farmers Insurance Group, a Los Angeles subsidiary of Zurich Financial Group, was unveiled in March. Farmers agents were to be placed in Bank of America branches to sell auto, homeowners, and other insurance products to bank customers.

Mark Ogren, the director of Aon Financial Institution Alliance, said the concept "has a lot of validity."

"You don't have to make a large capital investment," noted. "You're utilizing the investments and infrastructure your partner has made over the years."

Different Aon departments used to sell private-label insurance products through banks, credit unions, credit card companies, and mortgage lenders, he said.

Aon also plans to bring its insurance distribution capability to the attention of financial institutions that already use its brokerage and consulting services, Mr. Ogren said. He refused to say how many financial institutions had teamed up with Aon or how much insurance it has sold this way.

James Campbell, a senior vice president of Reagan Consulting Inc., an Atlanta firm that advises banks and insurance agencies in acquisitions, said banks "are still struggling with their insurance strategy, figuring out how to play in this thing and be a part of it.

"A few models are emerging as opportunities," including alliances, agency purchases, and bank consortiums, he said.

A lot of companies are working on different ways to get small and midsize banks into insurance "in a way that addresses the need or the desire of the banks to address their customers' insurance needs, but also provides an attractive distribution channel for the Aons on the world," Mr. Campbell said.

What works best for a specific bank will depend on a lot of factors, he said, including whether the bank is large enough to buy its own agency and the executives' level of commitment to insurance.

"Every bank has to start with the question: Why do we want to be in this business?" he said. "Is it purely to increase our interest income? Is it defensive - are we trying to retain our customers, or respond to our banking competitors? Or is it strategic?"

However, alliances do not always work for banks looking to incorporate insurance into their long-term strategy, Mr. Campbell warned. Many alliances have a "a wobbly strategic platform" that keeps them from lasting more than a few years, he said.

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