Growing dominance of banks in commercial insurance
One can see the growing dominance of banks when it comes to the distribution of property and casualty commercial insurance, observes John Wepler, president of MarshBerry . Twenty-five of the TOP 100 U.S. insurance brokers2 are now bank owned. And while this movement is likely to continue, bank executives have to be mindful of overall industry trends, he noted3 at the annual convention of the Bank Insurance Securities Association this week in Florida.
This is a soft PC insurance market. Premium4 growth rates have been lagging since 2002, with the notable exception of storm-ravaged coastal5 areas. Industry-wide, PC premium growth has fallen in the last year from 3.6 percent to about 2 percent.
The premium tide is no longer rising, says Wepler, and bank agencies are no longer looking at double-digit annual revenue growth, but more on the order of 6, 7, or 8 percent.
Recently, public brokers replaced banks as the TOP acquirers of agencies. This is more from lack of supply than from lack of demand, notes Wepler. Brokers have raised their offers compared with past years and have been lightning quick in getting deals done, often in 20-30 days, a time frame that most bankswhich tend to be more deliberativehave difficulty matching. The public brokers have outrun banks, says Wepler.
There is more interest among banks in acquiring benefits firms, which have generally higher profits margins6 than commercial lines insurance firms31 percent versus7 22 percent. And products like group health are generally less cyclical and often have good cross-selling potential compared with other insurance products. But, again, these firms are not always easy to find in the current market.
Therefore banks will need to concentrate more on organic growth, in particular integrating insurance with other parts of the institution, suggests Wepler.
The integration8 process will be long-term, requiring some five to ten years. Banks will need to be patient, much as they were with annuities9. But insurance is a product that every commercial client has to have, and eventually banks will dominate the commercial insurance distribution system, says Wepler.
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