Creating an Insurance Agency Aisle in Your Store: Overcoming Obstacles to Success in Financial Institution-Owned Insurance Agencies

Source: ProfitStars, a division of Jack Henry & Associates

Type: Guide

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Since 1999, regulatory changes have encouraged financial institutions to surge into the property and casualty insurance business as the “next big thing.” Over the past seven years, banks and credit unions have invested billions of dollars in buying, building or starting property and casualty insurance agencies. The initiatives, however, have generated mixed results, to the shock and disappointment of many senior executives who jumped headfirst into these inviting waters.

In fact, several of the early players are already exiting the business, divesting previously acquired agencies.

Others – huge industry leaders among them – continue to struggle with alternative delivery models. What’s going on here? The first-ever analysis of financial institution insurance referral data indicates that the failure is a matter of a structural misalignment between the financial institution and its insurance agency:

Selling auto, home and business insurance to bank customers and credit union members is much more commodity driven than financial institution and insurance agency principals ever imagined.
Most insurance agencies purchased by financial institutions are relationship-driven and built to serve only a small, high-end slice of the financial institution’s customer base.
Financial institutions have failed to research and understand the insurance needs of their customer base – and as a result often offer products that fail on price or coverage.
Because 100 percent of a financial institution’s customer base buys insurance year in and year out, the institution can generate huge referral flows to their insurance agency platform, but our research will show that half of these referrals will be for future purchases, and a failure to plan for this paradigm creates massive operational bottlenecks, service breakdowns and depressed profits.

Can a financial institution sell insurance to its customer base profitably? Absolutely. But until the institution
addresses the fundamental misalignments between the institution and the insurance agency, the institutionowned
agency will continue to fail to expand wallet share, fail to grow fee income, fail to drive market share, fail to promote customer/member retention and continue to dilute earnings.

This paper explores in detail the findings from the most extensive analysis of financial institution insurance data conducted to date in the industry (representing more than 5,000 referrals across 20-plus bank-owned and credit union-owned insurance agencies). These findings provide fresh insights into the business, and point the way for institutions that seek to drive significant financial results in their insurance businesses.

(Note that throughout this document we refer to “bank-owned,” “banking,” “bankers,” “customers” and similar terms in the generic to encompass the operations of national and state chartered banks, credit unions, thrifts—any and all financial institutions that are legally authorized to sell insurance to their customers and members. We have no desire to disrespect any categories of the business,but we think the reader will agree with me that this choice makes for less cumbersome reading!)