Banks nationally and in Western New York are gobbling up independent insurance agencies and building their own from scratch, in a bid to capitalize on another source of income while meeting a customer need.
Since the regulatory and legal climate changed seven years ago, U.S. banks have eagerly jumped into selling insurance. Most standard insurance products are viewed as just another financial services product, so the banks see it as a service they should be providing.
"It's just another one of those financial services," said Mark DeBacker, chief financial officer at Angola-based Evans Bancorp, parent of Evans National Bank. "It just fit nicely together."
Many of the largest banks have offered life insurance, annuities and similar investment products for several years, either through licensed sales representatives in branches or through money management units. That's the case with Citigroup, Bank of America Corp., KeyCorp, Citizens Financial Group's Charter One Bank and HSBC Bank USA.
But many small and mid-sized banks have also been pushing into property and casualty insurance, particularly on the commercial side, by acquiring independent insurance agencies. And they've sought to grow that part of their business across their branch network as a way of cementing relationships with customers by meeting more of their overall needs.
"We view our insurance producers as a key member of our business relationship team, not just as a product provider," said Daniel E. Cantara III, senior vice president of financial and business services at First Niagara Financial Group in Lockport.
Locally, First Niagara, M&T Bank Corp., and Evans have led the way, snapping up at least 19 insurance agencies between them from Buffalo to Albany since 1999. All told, they brought in about $42 million in insurance revenues last year.
And all three have expressed firm intentions to continue growing those businesses.
"We are looking to expand the product and service reach throughout M&T's footprint," said John Rumschik, president and chief operating officer of M&T Insurance Agency, citing the rest of upstate New York, central Pennsylvania, Baltimore, and Northern Virginia.
Most of the other smaller banks in the area do not offer much if any insurance. But at least three -- Cattaraugus County Bank, Lake Shore Savings & Loan, and Greater Buffalo Savings Bank -- say it's something have considered.
"It's picked up at a lot quicker pace than it had been in the last year and a half," said Kathy Weinheimer, senior vice president of industry relations and education at the Independent Insurance Agents and Brokers of New York State. "I'm not sure what's making it so attractive to get into insurance, but we are seeing a trend."
Agencies operate independently
Agents and customers say there's little difference in how an agency operates before or after it's acquired by a bank. The same regulations apply. And federal and state rules still mandate that it be kept separate from the banking side.
As a result, firms that are acquired are still operated independently. That makes the agents happy, since they can run their business and serve clients without interference.
"The insurance agent has the expertise and they should be the one to continue to run the operation," Weinheimer said.
The industry is also highly regulated to protect customers. Regulations strictly forbid banks from pressuring loan clients, for example, into obtaining their insurance from the bank's agency. Marketing is allowed, and lenders can offer a no-obligation quote, but they can't require a customer to take it.
"They're not allowed to strong-arm you and hold that over your head and require you to purchase from them," said John J. Schwab, president of Niagara National Insurance Group in Cheektowaga.
At the same time, banks say consumers can benefit by getting all their needs met in one place. And the larger the agency becomes, the more carriers it may represent and the more leverage it has to get lower prices.
That's the way Gary Mucci sees it. The Buffalo real estate attorney co-owns more than eight apartment buildings in the Buffalo and Syracuse areas and needed liability insurance.
He used to be with Matthews Bartlett & Dedecker before its acquisition by M&T and for a while afterward. But he switched to First Niagara Risk Management, formerly Warren-Hoffman & Associates, when his agent changed firms.
Both First Niagara and M&T have a presence in both Buffalo and Syracuse, so he can deal with just one agency.
"The benefit of being with one of these bigger firms is that they represent a number of different companies," he said. "You have to have all of the firepower that you can."
Decades-old walls between insurance and banking began tumbling in 1995, when the U.S. Supreme Court allowed national banks to sell annuities, and then in 1996, when it ruled banks could sell insurance in small towns. Three years later, Congress tore down the walls.
Since then, banks have steadily moved into insurance sales through acquisitions and internal growth, though they've been far more tepid about insurance underwriting. Today, more than 2,000 of the nation's 9,000 banks and thrifts sell insurance.
"Banks have been acquiring independent insurance agencies for several years and we see that trend continuing in the future," said Bill Lawley Jr., managing partner of Lawley Service Insurance Group in Buffalo. He said Lawley has been approached by banks, but "we have not felt the need to pursue these offers."
Banks sold an estimated $78.1 billion in insurance premiums in 2003, according to the most recent study by the American Bankers Insurance Association. A separate report by the group found bank insurance revenue in the first half of 2004 rose 23 percent from the same period in 2003, to $20.9 billion.
That six-month figure included $464 million for HSBC Holdings Plc, $116.5 million for Bank of America, $25.2 million for Key, $24.8 million for Citizens, and $10.9 million for M&T.
By comparison, First Niagara took in $18 million for all of last year, while Evans brought in $4.9 million. Yet Evans ranks 9th nationwide for the percentage of its "noninterest income" from insurance: 58.06 percent.
"We've just been real successful with making acquisitions, and the business line has performed real well for us," DeBacker said.
For banks, insurance offers a steady stream of revenue to supplement the less steady interest income from taking deposits and making loans. It also gives banks another product to offer retail and especially commercial customers as part of a larger relationship. The more products customers have, banks say, the more loyal they are.
"It's a natural fit," said Charles Aronica, senior vice president and Western New York market manager for Key's McDonald Financial Group. "People are so busy and they prefer to have one-stop shop."
For agencies that sell to banks, the deals give them the capital and backing to grow. In the process, they also gain new services and a more extensive array of carriers, and a large new customer base to cross-sell to.
And, since many of the agencies that are acquired are small mom-and-pop firms, it resolves succession issues and gives owners a profitable way out.
First Niagara buys several agencies
First Niagara has been the most aggressive here in purchases. Six years ago, it bought Warren-Hoffman & Associates, one of the area's largest firms with $8.59 million in revenue.
The goal was twofold: boost fee income and help First Niagara shift from a traditional savings bank to a commercial bank.
Since then, it's acquired eight agencies in Rochester, Ithaca and Albany, following the growth of its branch network. It's now eyeing additional purchases in other cities, such as Syracuse. It took in $18 million in revenues in 2004 and expects more than $22 million for 2005.
It's ranked No. 2 in market share in Buffalo behind Lawley Insurance Group, No. 5 in Albany, and at least No. 8 in Rochester. Statewide, no more than four or five other agencies are as large or larger, Cantara said. And it's one of the top 100 agencies nationally by revenues.
As with many independent agencies, Warren-Hoffman was primarily focused on business insurance, but today, just over one-fourth of its insurance revenues are on the personal side, up from 11 percent when Warren-Hoffman was acquired.
"We have very aggressive growth plans," Cantara said. "We think the sky's the limit."
Evans bought the M&W Group in September 2000 in a bid to boost fees and expand services. It's since purchased eight other firms, with the most recent purchase pushing it into Niagara County. And revenues have leaped from $600,000 in 2000 to $4.9 million last year.
Renamed ENB Agency, it offers personal, commercial, long-term care, and health insurance, as well as surety bonds. It has 12 offices, with three in branches. And about 55 percent of its business is retail.
And M&T bought Matthews Bartlett & Dedecker in March 2000, followed in September 2003 by a Syracuse agency. The renamed M&T Insurance Agency offers commercial and personal property insurance, but is centered on the business side. It also runs a personal lines unit in Baltimore.
A separate, smaller retail division offers life, disability and long-term care insurance through branches, with 1,500 branch employees and 300 financial consultants licensed.
HSBC relies on Internet, branches
By contrast, HSBC sells mostly through its licensed branch staff, the Internet, and a separate but smaller property and casualty agency it launched several years ago in Buffalo. It offers life and annuities, as well as home, renters, auto, condominium, personal liability, pet and business insurance.
Last year, the bank sold over 38,000 policies, said Josephine Woitas, vice president of insurance sales. And it sold more life insurance through its bank branches in 2002 and 2003 than any other U.S. bank.
Bank of America uses the Web, branches and investment staff to sell accidental death, life and health coverage. In 2003, the bank started a separate, small in-house agency for home and auto insurance, with representatives licensed in every state.
And KeyBank entered insurance when it purchase brokerage McDonald Financial. The bank sells annuities, life and long-term care through its branches and high net-worth team, but doesn't offer property coverage. Nearly one-fourth of sales by McDonald is insurance.
Observers say agency purchases won't stop. According to the ABIA trade group, of 391 banks surveyed last year, 49 reported purchases and nearly half had made one for the first time. Of the 49, 44 planned more.
"You've got a base of banks out there that plan to remain active," said Jim Campbell, senior vice president at Reagan Consulting in Atlanta. "Based on that alone, along with the influx of new banks, we're going to continue to see activity."