Academic journal article ABA Banking Journal

Online Insurance Opportunities for Bankers

Academic journal article ABA Banking Journal

Online Insurance Opportunities for Bankers

Article excerpt

Premise: Insurance is a key and significant component of an integrated financial services business model. Bankers interested in adding insurance product lines should consider the realities, inhibitors, and potential opportunities associated with that decision.

London, December 1, 1895--Housewives shopping for the family's Saturday evening dinner party visit a local greengrocer, butcher, fishmonger, baker, florist, and wine merchant for products to meet their entertainment needs.

Atlanta, December 1, 1995--People shopping for their fiscal security typically visit a local bank, a brokerage house, and an insurance agent or broker for products to meet their banking, investment, and risk management needs.

Atlanta, December 1, 2005--People shopping for their fiscal security typically need only visit their local bank-online--for all the products to meet their banking, investment, and risk management needs.

Life used to be so simple. One went to the butcher for steak and the greengrocer for vegetables and salad makings. But, simple was not necessarily convenient.

With the advent of supermarkets and, now, super stores, we can buy not only all the food for Saturday's dinner party, but also the dining table, chairs, napery, silver, crystal, and china for the occasion.

And, what about the prospect of shopping for all our banking, brokerage and risk management needs-online--with one's bank? Is it a vision or fast becoming a reality?

Integrating the financial marketplace

Increasingly today, banks and brokerage houses offer customers a selection of deposit instruments and lending services as well as securities and other investment products and services. The repeal of the Glass-Steagall Act signaled the start of a new game on a more level playing field for participants in the financial services industry.

Now banks are purchasing securities firms, and online brokers are becoming virtual banks, loosening bankers' once proprietary hold on trust accounts. Banks and brokers now also offer at least a few risk management products--typically annuities, term life, personal auto, or other commodity type products. Any walls remaining in the once sacrosanct "silos" of banking, brokerage and insurance are now shaky at best.

For their part, large insurers have been showing interest and gaining valuable experience with the integrated financial services business model. State Farm, Allstate, Principal Financial Group, and USAA all offer online banking products to their policyholders and employees, and have for some time. As a clear and compelling indicator of their interest in the banking industry, insurance powerhouses Zurich, Allianz, and State Farm recently funded the lion's share of a joint $244 million investment in S1 Corporation, the banking software house. The other two companies helping to fund the investment were banks: J.P. Morgan and FleetBoston Financial Corp.

Brokers were first online

One could legitimately argue that online brokerage has been the internet's "killer app." Brokerage houses were the earliest adopters of an e-business model, offering discount stock trading on the internet, and appear still to lead in taking their wares into the virtual marketplace. While some online brokers continue to differentiate themselves based on low cost trades, others such as Charles Schwab and E*TRADE Group have pursued integrated financial services "click and mortar" strategies--adding banking and insurance products to their portfolios, and leveraging branch office presences in addition to their websites. Demand for online brokerage services will continue to grow.

According to Forrester Research, there were 6.78 million online brokerage accounts in September, 2000. Forrester forecasts that more than triple this number, 21.34 million online trading accounts, will be active by 2005. By 2003, mid-tier brokers are expected to capture the most online accounts and $1. …

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