Academic journal article ABA Banking Journal

An Insurer Talks about Banks in Insurance

Academic journal article ABA Banking Journal

An Insurer Talks about Banks in Insurance

Article excerpt

Nationwide Financial Services President Joseph .J. Gasper doesn't think many banks will acquire insurance companies now that they're permitted to. That's partly because of the generally lower returns of traditional insurance companies. Also, he says, "becoming a financial services supermarket is a difficult strategy to execute. This is not to suggest that some companies won't try, though."

Insurers in the asset-accumulation business wilt likely be the most attractive candidates for banks, Gasper believes. "This business seems to tie more closely to what banks are comfortable with (fee-based asset management and Long-term-savings products). Having said that," he continues, "the list of potential candidates is surprisingly short. [Lincoln National and American General are two examples he cites.] "In fact," says Gasper, "Nationwide Financial actually fits the profile of a great acquisition target because our business focus is so sharply defined on retirement products. However, we are a core part of (80% owned by) Nationwide and are not for sale."

Gasper believes that banks will be very powerful distribution outlets for insurance. They already are a significant outlet for Nationwide Financial's Line of variable annuities. Nationwide Financial is the second-largest distributor of variable annuities through banks and other financial institutions, and also sells life insurance, retirement plans, and mutual funds. In '99 the company did approximately $16 billion in sales of which 15% was through banks.

Life, yes; P&C, no

Gasper sees a trend toward "horizontal specialization" of some parts of the value chain, rather than vertical integration of product manufacturing, servicing, and distribution. "This suggests that banks may be more comfortable with the distribution of life insurance and retirement products, while they leave the underwriting risk, product manufacturing, and service aspects to the life industry," he says. He also expects banks to sell more variable universal life (VUL) policies, which are now the largest life category. (In a nutshell, a VUL is a mutual-fund-like investment product with a life insurance wrapper. …

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