Most bankers are looking for the same things — better ways to retain customers and increase fee income.

Unfortunately, as competition heats up your customers become a target for your competitors, and there are a lot more of them than there used to be now that the financial services industry has opened up.

Fortunately, it’s been shown that the more products a customer buys from a single source, the more loyal that customer is to that vendor. The more diverse your product menu, the more fee income you can earn, so your two challenges can be resolved together by offering such products as securitized mortgages, investment vehicles, mutual funds, annuities, and insurance.

Bankers have realized this: The percentage of bank income earned from fees has steadily risen the past four years. Most of the increase, though, has gone to “big banks,” not community banks.

Many of the big banks have realized that insurance — whether property and casualty or life products — is becoming one of the best sources for fees. For one thing, it’s a renewable resource: Auto insurance isn’t the only type of policy that has to be renewed every year. And it’s predictable: People pay their premiums throughout the life of the policy, no matter what kind it is.

Every customer — everyone who takes out a mortgage or car loan — represents an insurance sales opportunity; so does every transaction, whether through a teller or an ATM. Every policy sold poses an opportunity to build customer loyalty. Selling insurance is a way to meet the challenges of customer retention and stable fee income, a winning combination for long-term success.

But as with any new business, insurance has hazards that you have to be aware of before you begin selling it.

There are three great things about getting into the insurance business: There’s a great deal to consider; there’s great opportunity for additional revenue and profit; and there’s a great opportunity to make mistakes that can turn opportunity into total disaster.

The differences between banking and selling insurance are profound. The service-versus-sales difference is just one component of the list. True, insurance and banking are both financial services, but nevertheless the cultural clashes can be huge. Integrating insurance into your banking culture can be bruising if it’s not done right, and your bottom line can take some heavy hits.

There are several ways to enter the insurance business, and you may want to think about your current culture while you’re deciding which to choose. You might lease space in your branches to agents or do joint marketing with them, negotiate an arrangement with a single company, start an agency from scratch, or buy one.

Most community banks are choosing to buy insurance agencies or strike partnerships with them. One reason acquisitions are favored is they resolve a number of questions, the main one being “Who’s in charge here?”

But it’s time to sound a warning: It’s certainly true that insurance agencies are plentiful — you probably just have to walk down the street from your bank to find a couple — but the ones that can provide the platform for a bank-insurance program are becoming scarce.

Your insurance program has to be founded on a profitable, well-managed agency. It’s hard to give first-rate service with a second-tier agency, and today customer retention demands that you give first-rate service.

Banks have an advantage here, because owners of good agencies like to partner with banks. Why wouldn’t they? The banks have capital and customers. But again, the better agencies are becoming harder to find.

Many bankers are realizing that their biggest difficulty in buying an agency is that they don’t really understand in a practical way how insurance agencies work. What makes a good agency? How do you value one? What’s a fair price? Who should come to the bank with the agency, and who’s not needed? Once you’ve got it, how do you staff it? And the really worrisome question: How do you keep the regulators happy?

But the answer to another question is the one that really can make or break the decision: How much can this acquisition bring to the bottom line?

All these questions can be answered, and in your favor, but it takes work.

We suggest you make that work easier for yourself by bringing in experienced professionals to help you avoid the traps and pitfalls — some of them fatal — of establishing insurance operations.

Timing is often the difference between success and failure, and time is running out if you want to work with the best in the insurance agency business. And that’s what you need to meet the two challenges of customer retention and increased, stable fee income.

Mr. Seidman, a former Federal Deposit Insurance Corp. chairman, and Mr. Pottridge are principals of Pottridge & Associates Inc., an Alexandria, Va., firm that helps banks enter the insurance business.

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