Investment News
2006 Crain Communications Inc.
July 24, 2006
Volume 10; Issue 28
Section: News
Insurers and banks become wary
bedfellows
Both look for opportunities to cross-sell products
Gary S. Mogel
NEW YORK - With the financial-supermarket
concept once championed by New York-based Citigroup Inc. now dead - or at least
dormant - insurers and banks are looking for new ways to get into each other's
businesses.
That is the essence of ``The Next Phase of Insurance and Banking: Rethinking and
Retooling for Strategic Advancement,'' released this month by Conning Research
and Consulting Inc. in Hartford, Conn.
No other companies tried the supermarket approach to any great extent, as they
were waiting to see whether the Citibank experiment would succeed. It didn't,
noted Terence Martin, an analyst at Conning.
''The next big deal never occurred,'' he said.
''The hoped-for cross-selling and synergies didn't materialize,'' Mr. Martin
said. ''The supermarket strategy worked in Europe but not here.''
Insurance and banking are converging, but not in the way that many industry
observers predicted, according to the report.
Banks want to offer insurance products, but they often don't want to manufacture
them, the report noted.
''Many banks have developed insurance operations that generate significant
non-interest income,'' Mr. Martin said. ''But they don't want to manufacture
insurance products, because historically, the return on equity of the insurance
industry has lagged banking.''
On an annualized basis over the past decade, he added, life insurance returned
10%, property-casualty 7%, and banking about 14%.
So the banks' strategy has been to be product distributors - by acquiring
insurance agencies or by selling insurance products through licensed bank
advisers, according to Mr. Martin.
Insurers, meanwhile, often have found it more profitable to be buyers rather
than renters. Many have purchased or chartered their own banks rather than
partner with established ones.
''Insurers look to increase assets under management by offering banking services
to clients,'' said Stephan Christiansen, Conning's director of research.
The reason is the flip side of why banks have shied away from being insurance
underwriters. By adding banking operations, insurers hope to boost their return
on equity, and both are looking for opportunities to cross-sell their products.
But the cross-selling can't amount to tying a loan to the purchase of insurance
from the lender, as that generally is prohibited by law, Mr. Martin pointed out.
Some industry observers think that managerial communication lapses are what
doomed many bank-insurer partnerships and joint ventures to sell insurance
policies.
Bank and insurer managers often don't communicate well about products and
marketing strategies. That is a key factor that prevents banks from becoming a
major insurance sales channel, according to a report last year by the American
Council of Life Insurers in Washington.
Failing to hammer out an effective business plan and nervousness about complying
with unfamiliar regulations in each other's businesses also have contributed to
the slow integration of banking and insurance services, the ACLI report
indicated.
Psychological differences among management teams have impeded insurance sales
through banks, according to Michael White, president of a bank insurance
consulting and data firm in Radnor, Pa., that bears his name.
''Bankers don't like to sell products, and in insurance, products must be
sold,'' he said.
Health savings accounts are one area in which banks and insurers potentially
could create profitable new partnerships - or ramp up competition.
Because HSAs are written in conjunction with lower-premium, high-deductible
health plans, premium income will decrease 5% by 2010 and 10% by 2015, said
Matthew Josefowicz, manager of the insurance group for Boston-based Celent
Communications LLC. Insurers will have to work to replace those lost premiums
with account management and fee income, he noted.
Some health insurers have started banks to offer HSAs and obtain asset
management fees, while others are partnering with banks.
However, banks are reluctant to start insurance companies to get into the
high-deductible health plan market, because they don't want an insurer
subsidiary that may be a drag on the parent company's returns, Mr. Martin said.
Gary Mogel can be reached at
gmogel@crain.com.
Whit
Cornman
Associate Director, Media Relations
(202) 624-2442 t
(202) 572-4733 f
whitcornman@acli.com |
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