Bank-Agent Mergers: Never A No-Brainer

Banks of all sizes and types have entered the business ofselling insurance, and many more are anxious to get into it. Banksacross the country are buying independent insurance agencies, andthe number of deals grows every month.

What's driving this trend? Banking is a slow-growth businesstoday, and bankers are searching for synergistic ventures that canadd fee income and make their profits grow faster.

Insurance sales makes sense because of cross-sellingopportunities. A combined bank and insurance agency should be ableto sell more products and services than two separate entities.

Every bank has customer information that's like gold to a goodinsurance agent. By mining this information, agents can sell moreinsurance to bank customers than they could to strangers.

By combining forces, both the bank and the agent will come outahead–if the deal has been structured properly, and there's a goodfit between the bank and the agency.

But that's a big “if.” A merger is far from a no-brainer.Bridging the cultural gap between bankers and insurance agentstakes intensive effort and planning. Unless both parties understandwhat they're getting into, a merger won't unleash thepotential.

Bankers must understand how insurance agents and insuranceregulators think. They must understand that insurance agents aresales-driven entrepreneurs–and give them the freedom to do whatthey do best.

In turn, agents must understand that bankers view themselves asresponsible fiduciaries safeguarding their customers' money. Theyneed to understand the exceptionally stringent regulations underwhich banks operate.

Here's one example of such a cultural gap. Insurance companiesoften reward their top producers with trips to conferences at fancyresorts. Sending agents to Cancun in January might be an acceptedpractice in the industry, but some bankers view such perks asbordering on corruption, and they worry how banking regulators willreact. An issue like this can be a deal-breaker.

The banker and the agent must keep their eyes wide open andcarefully assess each other before getting hitched. In addition, toassure success after the merger, they need a sound business planand strategy.

None of this is simple. A multitude of issues must be hammeredout. (See the sidebar with this story for an outline of some ofthese due diligence issues.) Agents shouldn't be overconfident.Selling an agency is not like selling a policy. It takes anentirely different set of skills to get the best price andterms.

Insurance sales is a natural fit for banks looking to expandtheir offerings and increase revenues and profits. A well-runagency can produce a 20 percent annual return or more on the bank'sinvestment.

As a former insurance agent myself who acquired severalagencies, and who has structured many transactions for banks as anacquisitions-and-mergers consultant, I know first-hand that mergingwith a bank can pay off handsomely for the agent as well.

With the financial backing of a bank, access to the bank'scustomer list and a solid business plan, agents can take theirbusiness to the next level and make more money than they thoughtwas possible.

Jerry Vigneron is managing director of North Bridge AdvisorsInc. of Concord, Mass., a consulting firm that helps communitybanks identify and evaluate insurance agencies for acquisition andmake the transaction work. He can be reached at 978-369-6924 orvia [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, October 15, 2001.Copyright 2001 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.

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