Middle Market Takes to Employee Benefits

Article excerpt

A number of banks in insurance are adding to or reinforcing their employee benefits operations in a trend that experts say demonstrates the way these banks are focusing on their middle-market commercial customers.

"This is a trend that is going to be a continuing pattern. There is more and more focus on the benefits side within the bank-insurance business, and it is a natural evolution," said James Campbell, a senior vice president at Reagan Consulting in Atlanta.

"Employee benefits is an extremely expensive line item, and every CFO struggles with this year after year. We've seen increasing health-care costs with no end in sight," said Steve Fallon, senior vice president for the employee benefits practice group of Wachovia Insurance Services. Employee benefits accounts for nearly 50% of the unit's revenues, he said.

John Wepler, an executive vice president at Marsh, Berry & Co. in Concord, Ohio, a firm that puts together bank-agency deals, said, "We have a large number of benefits agencies that are in discussions with banks presently." Most of the interest from banks has really come only in the past eight months, he said.

"Most of the banks that we talked to want to eventually get to a threefold insurance strategy where they have 33.33% in commercial, 33.33% in personal lines, and 33.3% in group health" and other benefits, Mr. Wepler said. "These are three viable lines of business that can withstand fluctuations in the market."

Last week, Waypoint Financial Corp. of Harrisburg, Pa., and Associated Banc-Corp of Green Bay, Wis., each bought an agency with a large employee benefits operation.

In late March, ABD Insurance and Financial Services in Redwood City, Calif., a subsidiary of Greater Bay Bancorp, appointed Sam Jones to a brand-new post -- president, corporate development -- with a mandate to increase cross-selling among the bank, property/casualty, and employee benefits businesses.

Mr. Campbell predicted that more banks will buy employee benefits agencies.

First, he said, "it's a natural tie-in to the commercial property/casualty business."

Many banks have already bought property/casualty agencies, and cross-selling employee benefits to the clients of these agencies is an obvious opportunity, he said. Banks that sell retirement plans through their investment arms can also use the products as an entry point for selling health plans and other benefits products.

This push toward employee benefits also "falls under the umbrella of a broader trend," Mr. Campbell said, because "bank insurance is shifting more toward the commercial business and focusing more and more on that middle-market customer."

Many banks that have bought agencies have done so to sell to commercial customers, not individuals, he noted. Though many banks sell personal lines insurance through alliances and other relationships, a big portion of bank-agency acquisitions focuses on commercial customers, he said.

Most commercial property/casualty agencies offer some employee benefit products, but a lot of these sales are handled by specialists, like e3 Consulting Inc., the Mechanicsburg, Pa., agency bought by Waypoint Financial.

Buying such an employee benefits agency can give a bank's existing insurance operation a ready-made full-service benefits department.

C.W. Smith, the president of Waypoint Insurance Group, said he had long been interested in getting into employee benefits. "There are greater margins in that business, much better than property/casualty, and I think a better growth opportunity," he said.

Mr. Wepler seconded that opinion.

"The benefits operations have, on average, core profitability that's about 5 to 6 points higher than the P&C shop," Mr. …