Wells Fargo & Co., a giant bank that already runs the fifth-largest insurance broker in the world by revenue, is seeking to double that revenue in the next decade.
Acquisitions, perhaps a string of them, of insurance brokers, cross-selling more policies to customers who already bank with Wells and expanding the life insurance business will fuel the growth, Neal Aton, the chief executive of Wells Fargo Insurance Services, said in a recent interview.
The push to expand insurance shows how John Stumpf, the company's CEO, is broadening revenue. The effort comes at a time when loan demand remains tepid and, given the size of Wells, growth in banking is hard to achieve. Other units Wells is expanding include securities brokerage and investment banking. "Even though … we are the largest bank-owned insurance company, we think there is tons of opportunity to distribute insurance," Stumpf said in a March interview.
Insurance brokerage is less than 3% of revenue at Wells. Such revenue has nearly doubled in 10 years. For the most part, Wells doesn't underwrite insurance but sells property/casualty and life insurance policies.
David Hoyt, head of Wells' wholesale banking division, which includes the insurance business, said selling insurance policies is attractive because it is one of only two financial products business customers really need, the second being a transaction account.
Wells ranks fourth among commercial insurance brokerages by revenue in the U.S., according to Crain Communications Inc.; Marsh & McLennan Cos. is No. 1 in the U.S. and worldwide. Wells has been selling insurance policies since the 1920s, but expanded significantly by buying Acordia Inc. in 2001. Purchasing Wachovia Corp. added about $200 million of revenue via the Charlotte, N.C., company's own acquisitions, including Palmer & Cay.
Insurance overall, including a small underwriting business, made up about 2.5% of the bank's revenue last year, or $2.1 billion. In 2000, it was $411 million, or 1.5% of revenue.
"It is part of Wells' overall view that you have to have nonlending revenue and growth," said Fred Cannon, the director of research and chief equity strategist at KBW Inc.'s Keefe, Bruyette & Woods Inc. He wrote in a note to clients two weeks ago that, "Wells may be a first-mover among large banks in returning to" mergers and acquisitions, including insurance brokerages. The balance sheet is strong, Cannon wrote, but revenue is "starved."
Aton said Wells could buy one to three insurance brokers or agencies a year, but is looking for bigger deals. Among the top 100 brokers, "several handfuls would fit very well," he said.
Wells sells mainly property/casualty insurance policies, but selling more life insurance to consumers could eventually generate $1 billion in annual revenue, Aton said. Building a meaningful life insurance sales business will likely take two to five years, he said.
Another goal is to help more businesses with employee benefit programs, which make up 20% of the insurance revenue. Aton said he'd like to see that share rise to 35% within five years.
Wells wants to expand its P/C businesses organically. The challenge will be to convince insurance buyers, who tend to be very loyal, to switch brokers, Hoyt said.
Aton said 25% of the commercial insurance business revenue comes from Wells' own clients. He aims to increase that share to 50% over the next three to five years. One in 15 Wells customers bought insurance through Wells; the goal of selling to one in five is ambitious, Aton conceded. But looking at the past decade, he said, "It felt so good, I'd like to do it again."
