Magazine article American Banker

Want to Sell Insurance? Make Sure Your Market Is Right

Magazine article American Banker

Want to Sell Insurance? Make Sure Your Market Is Right

Article excerpt

Newman Grove, Neb., many farmers and business owners turn to the Gerhart family for both their banking and their insurance needs.

The family has owned First National Bank of Newman Grove since 1897. In the 1960s, the family bought a stand-alone insurance agency.

The combination of businesses deepened relationships with customers, says Jeffrey L. Gerhart, president and grandson of the bank's founder.

The $34 million-asset institution is like many other Midwestern banks whose owners have long offered insurance to their business customers through separate insurance agencies. These banks remain committed to the practice even as the overwhelming majority of community banks shuns insurance for small business customers.

"Banks have a tremendous relationship with small business and so to capture their insurance business is, on the surface, a good idea," says Kenneth Kehrer, a consultant based in Princeton, N.J. "But the problem is one of scale."

He says that if a $1 billion bank company had several hundred business customers and achieved a 20% penetration rate with insurance, that would be just 40 customers.

That is the sort of analysis that led First American Bank, a $1.3 billion institution in Elk Grove, Ill., to scrap the idea of introducing insurance. It did not make sense to post agents in the bank, says John Ward, president. "Can we make an agent enough money in our branches?" asks Mr. Ward. "The answer is no."

So Mr. Ward came up with simpler alternative. He chose to give bank customer names to a local insurance agency in return for referrals to the bank from the agency.

The deal has borne fruit. In the past year, referrals from the agency have resulted in 20 new business banking customers.

Mr. Ward says every community bank should look at its own market before deciding whether to tap into insurance sales. Some, he says, will find the competition too hot to handle. …

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