In the decade since Webster Financial Corp. became the first Connecticut bank to begin selling insurance via the acquisition of an agency in Westport, the banking industry has had mixed results with the experiment.
Rapid-fire regulatory changes late last decade, most notably the 1999 passage of the federal Gramm-Leach-Bliley Act deregulating financial services companies, allowed banks for the first time to start underwriting or marketing insurance products.
Waterbury-based Webster Financial, whose Webster Bank was the third largest in the state at the time, spent $9 million in April 1998 for Damman Insurance Associates. With $81 million in premiums in 1998 and 50 employees, Damman numbered among the three largest agencies in Fairfield County.
Webster Financial subsequently bought out Fairfield-based LFJ Insurance Services and several other agencies in Connecticut, and in 2005 the company”™s insurance revenue reached a high-water mark of $44 million.
Insurance revenue receded to $39 million in 2006, however, which the company blamed in part on its inability to retain some customers, and the bank moved much of the Westport insurance operation to Meriden. Through the first nine months of 2007 insurance sales were down another 8 percent, and in November Webster Financial aired plans to sell off its insurance operations. The company stated it was interested in continuing to sell insurance via a partnership with any acquirer.
Webster Financial”™s experience selling insurance runs counter to the nationwide trend. Banks cracked the $4 billion mark in 2006 in insurance brokerage fee income, according to Michael White Associates L.L.C. of Radnor, Pa.
“Between 2001 and 2006 bank insurance-brokerage revenue has been growing at compound annual rate of 19.5 percent,” White said. “Banks have done very well in recent years.”
As insurance rates continue to soften, however, fee revenues are likely to have been flat for 2007.
While Webster Financial is not alone in divesting its insurance arm ”“ Providence, R.I.-based Citizens Financial Group Inc. sold off its agencies two years ago ”“ other local banks have had relative success, both large and small.
In May 1998, Bridgeport-based People”™s United Financial Inc. acquired R.C. Knox & Co. Inc., at the time the state”™s largest independent agency with $115 million in annual premiums. While insurance revenue for People”™s United dropped 2.5 percent last year to $27.3 million, that figure included the $700,000 sale of a large corporate account to another company. Hartford-based R.C. Knox was one of three Connecticut agencies to be recognized on a “best practices” list published last year by the Independent Insurance Agents of America.
Meanwhile, Westport-based Connecticut Community Bank N.A. has seen its Associated Community Brokers Inc. (ACBI) insurance arm in Fairfield add 15 agents in just a few years time, including two from Webster Insurance the past few months.
Many agencies took the stance of “if you can”™t beat them, join them” 10 years ago on fears they would not be able to compete with the financial muscle and branch traffic banks enjoy, with some older owners opting to retire.
“The question at the time was, ”˜Hey, is this tidal wave going to bowl me over?”™” said Dan Keane, president of ACBI. “But they began to treat the insurance producer almost like a bank employee. They didn”™t appreciate the difficulty of someone who is producing a million-dollar book of business, and producers started jumping ship.”
That has helped agencies like ACBI and Norwalk-based Pierson & Smith Inc. to stake out turf in the shadow of big banks and large, sophisticated brokerages like Marsh USA Inc., which had 70 brokers in Fairfield County last year compared with 30 at Pierson & Smith, according to a Fairfield County Business Journal survey
