Magazine article American Banker

Countertrend: Getting out of Insurance Business

Magazine article American Banker

Countertrend: Getting out of Insurance Business

Article excerpt

As bank after bank pushes into the insurance business-buying an agency, rolling out a proprietary annuity, signing on a new underwriter-it is easy to lose sight of a countertrend.

Some banks are deemphasizing insurance operations or dropping out of the game altogether.

In September, Washington Mutual Inc. announced an agreement to sell its life insurance subsidiary, which manufactures, sells, and manages variable and fixed annuities.

Six weeks later, Fleet Financial Group said it would close its insurance sales unit and integrate the business into its retail bank. It said it would drop all its insurance carriers but one-Travelers Group.

These bigger institutions are not alone. Elmira Savings Bank in Elmira, N.Y., announced the sale of its insurance agency this month.

The banks were disappointed in their insurance businesses' profit levels.

And industry watchers predict more banks will pull back from insurance for the same reason.

"It's not a given that banks are going to be able to succeed," said Maryanne Godbout, an insurance consultant at Conning & Co., Hartford, Conn.

Most observers agree that the larger banks are more likely to thrive in the volume-driven insurance business.

"You do need economies of scale," said John Brugler, president and chief executive officer of Elmira Savings.

He said competitive pressures forced the thrift to cut its commission rate, which had pinched profits. The bank was also hampered by state laws that restrict cross-selling. …

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