Deregulation Pushing Banks Into Insurance Industry

As the financial services industry has evolved since deregulation, there has been a rise in “bancassurance: the joint effort of banks and insurers to provide insurance services to the bank’s customer base,” according to Dr. J. David Cummins, Harry J. Loman professor emeritus of insurance and risk management at the Wharton School, University of Pennsylvania, quoting a description of the phenomenon by Swiss Re. Speaking at an educational seminar in November on “Bankers and Brokers: Mergers and Acquisitions Between the Banking and Insurance Brokerage Industries,” Cummins said a major issue is whether this consolidation, if it is to continue, will produce value to banks, insurance companies, and insurance brokers.

Cummins noted that the results of bancassurance, to date, have been mixed. There has been some movement by large financial institutions to acquire insurance companies — e.g., the Citibank/Travelers merger — but most bank entry into insurance has been in insurance distribution, he said. That has mainly occurred either by direct distribution of insurance by banks — generally life insurance and annuities — or through bank acquisition of insurance brokerages, which involves both life and annuity product and property/casualty insurance.

There are potential benefits of bank and insurance services consolidation, such as revenue diversification and economies of scope, e.g., cross-selling opportunities, Cummins said. Yet he indicated there are also challenges, such as integration of costs and possible loss of strategic focus.

Cummins said his research has shown that life/health and property/casualty insurance agency/broker acquisitions by banks have produced value to the banks, but the gains have been relatively small, and have occurred largely in the life and health insurance lines. The mergers and acquisitions have been mostly neutral for brokers, agents and insurance companies — producing neither gains nor losses, he said.

The results suggest that we may see continued bank entry into insurance, but that it will not be rapid or industry-changing, he predicted.

Following Cummins’ presentation, CSUF Professor John Cross moderated an executive panel, whose members have experience with bank entry into insurance. The panel members included: Jeffrey Lang, senior vice president of sales and marketing for Wells Fargo Insurance Services of Southern California; Steve Marquez, president of Union Bank Insurance Services’ Armstrong/Robitaille division; David Spigner, president of East West Insurance Services, a subsidiary of East West Bankcorp; Bruce Stava, senior vice president and program manager for First Brokerage America LLC; and Carter Thompson, director at Swett & Crawford.

The panel members generally spoke positively about the integration of banking and insurance distribution. They noted some differences in the cultures between banks and insurance brokerages, but said that with an emphasis on working relationships and developing synergy, banks and insurance brokerages can work very well as part of one organization. The speakers referred to increasing revenue, enhancing customer service and relationships, and stabilizing income as benefits that can be realized through bank and insurance brokerage integration.

While not always seamless, a relationship between banking and insurance brokerages can work well, and well-managed integration can produce tangible benefits for both banks and brokerages, the panelists concluded.

The bancassurance event held on Nov. 16, 2007, was presented by the Center for Insurance Studies at California State University in Fullerton, Calif., through contributions from title sponsor The Zenith National Insurance Corp. and additional event sponsors. Information was provided on the bancassurance trend, as well as about the growth of CSUF’s Center for Insurance Studies and College of Business & Economics.

Presenters included Dr. Weili Lu, director of CSUF’s Center of Insurance Studies; Dr. Anil Puri, Dean of CSUF’s College of Business and Economics; Glen Zepnick, vice president of Zenith National; Sam Cargill, chairman of Aon Risk Services of Southern California; Cummins; Joseph E. Boettner, professor of risk management, insurance and financial institutions at the Fox School of Business and Management at Temple University; and Dr. Mary A. Weiss, Deaver professor of risk, insurance and healthcare management at the Fox School of Business and Management.

Proceeds from the bancassurance event were used to fund a dean’s insurance scholarship at CSUF and were donated to the Insuring the Children Program. In addition to the title sponsorship of Zenith , event sponsors included Armstrong/Robitaille/ Riegle; Partee Insurance Associates; Swett & Crawford; and the Client Advocate Network.

The event was one of several industry events presented by CSUF’s Center for Insurance Studies. The Center for Insurance Studies, established under the direction of Dr. Weili Lu in 1998, has a goal to attract and educate individuals who are committed to professional careers in the insurance industry.