building a replacement business

 building a replacement business

Pursuing a profitable sideline, bankers face key decisions striking into new terrain or a while, bank president Jim Caspary had been curious about diversifying banking products initially commercial bank of Clifton, Ill. So in early 1995, when a chance arose to get an insurance ageِncy located just three blocks from his bank, he leapt at the prospect.

building a replacement business

Purchasing an operational and fully staffed agency catapulted his bank into insurance sales easily, quickly and at a lower cost than building a replacement business from scratch, Caspary says. Besides, time was short, he recalls. According to him, there was considerable debate over the future acceptance of insurance agents by national banks.

First National's gambit outside of banking reflects the renewed interest of community banks in venturing into the doubtless lucrative field of insurance. Because many nations permit state banks to interact in activities permitted by national banks, quite half the American people live where banks are permitted to sell insurance. the normal insurance distribution network is in decline. The recent U.S. Supreme Court ruling within the Barnett Banks case also caught in a frenzy lingering legal uncertainties, opening a golden gateway for community banks to capture an enormous chunk of the retail insurance market.

According to Michael White, president and CEO of the Institute of Bank Insurance Studies in Wayne, Pa., a nonprofit organization that conducts research on insurance topics, there are 3 ways community banks can establish insurance operations. And banks are limited in most states to selling life, property/casualty, health and crop insurance products. First, banks can form and operate their own insurance agency, either as a division of the bank or as a subsidiary of the company. Second, banks can own an insurance agency, but limit bank involvement by counting on outside expertise to perform specific sales operations. Third, they will farm out insurance sales entirely to a third-party partner.

Determining whether to sell insurance via a bank department or a company subsidiary is usually dictated by state law. Independent bankers even have particular ideas about what works best for his or her banks and customers. But the important structural questions for banks seeking to have and operate an insurance agency usually stem from deciding how best to plug their products, White says. One consideration is where to sell insurance-on the bank's premises or off.

Craig Reeves, president of First commercial bank in Clayton, N.M., recently moved his bank's insurance sales operations from an off-bank location to the bank's customer service floor. That change allows First National to closely integrate insurance sales with customers' bank transactions.

"The advantage of selling insurance products within the bank is that you simply get bank customers, plus customers of other financial institutions coming into your bank for insurance products, which creates crossselling opportunities," Reeves says.

Reeves claims that as a result of the partnership, selling insurance products is simpler. He asserts, "We may offer a price on insurance to our customer at the same time they are obtaining linked bank products.

Elsewhere across the country things are flowing in an opposite course. Jim Shafer, president of First commercial bank in Tremont, Ill., believes selling insurance out of the bank makes the products harder to sell. So he plans to maneuver his agency to an off-site location.

Customers do not enter the bank with the intention of attempting to engage in activities other than regular banking transactions, according to Shafer. He claims that a double-sell is necessary to get over this client mindset. "You need to sell the concept of bank insurance before you can sell the product."

Aside from where to sell insurance, however, banks also must decide who should sell the product-bank employees or independent agents. …

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