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By STEVE TUCKEY, who has written on insurance issues for a decade for several national media outlets

The recently combined Wells Fargo and Wachovia insurance operations rank among the top five brokers in the country and continue the tradition of looking to their banking cousins' customer base as a source of organic growth.

Quantifying cross-selling success remains a challenge. Jim Campbell, a principal with Atlanta-based insurance consultancy Reagan Consultants, says the percentage of new business is the most useful metric.

He cites the example of a Pennsylvania bank, S&T Bancorp, which enjoys an estimated 55 percent bank referral rate for new business. But such high percentages belong primarily to the smaller operations rather than those of the Wells Fargo scale.

Prior to its acquisition, Zuercher says, Wachovia was becoming more cross-selling oriented after a top official from the banking side came to the insurance operation with that mission in mind.

While a 10 percent bank referral rate may strike some observers as impressive, Zuercher says that is only a starting point.

Scott Isaacson, executive vice president, specialty sales and marketing, Wells Fargo Insurance Services, says that his team meets regularly across the country with officials from different parts of the bank. Of the estimated 80 parts of the bank, about 10 have the greatest cross-sell potential.

Isaacson lists asset management, wealth management, trust, and real estate and construction services as among the top bank businesses that have natural synergies with the insurance brokerage business.

"I think we are still in infancy stages even though we have been at it over five years," Isaacson says. "Eventually the potential is for maybe 25 percent to 35 percent or even up to 50 percent of our overall business every year in the middle market (to) come from cross-sell," he says.

San Francisco-based insurance mergers-and-acquisition specialist John Wicher says the challenge of determining Wells Fargo's success in cross-selling lies in the fact that it does not have to provide all that much information about its insurance operation because it is not as material to the overall businesses as other bank-insurance combines.

"You just don't have the same sort of rich information that you have with the public brokers or the banks like BB&T, where the insurance is significant enough that you have a breakout of the numbers," he says.

Wicher says that the old Norwest's successful exploitation of the Glass-Steagall exception, to allow banks in small communities to sell insurance, paved the way for much greater success when in 1999 the Gramm-Leach Bliley Act tore down the walls set up in that Depression-era legislation.

But despite the demonstrated success of Wells Fargo, some doubts about the overall effectiveness of cross-sell strategies linger.

CROSS-SELLING NOT A SLAM DUNK

"When you are distributing banking and insurance through different channels, I am not sure you are really going to change a buyer's point of view unless you had the bank's calling officer saying to an insurance agent that, 'I would like you to make a joint call with me on my commercial client,' " he says.

Maintaining a credit relationship is centered on safety and soundness and preserving the bank's assets, whereas the sale of insurance is sales and you are not taking risks. "So there is a difference in culture and difference in compensation," Wicher says.

With his experiences in getting banks involved in insurance, Wicher says, "It is hard enough to get the credit officer to take out even the trust officer or the cash management people, so to take an insurance agent out on a sale is really hard."

"There is a lot of institutional resistance. There is always the concern that, unless you build high trust levels, the banking relationship could be diminished in some way if they are not satisfied with the insurance relationship," Wicher says. "It always seemed to me to be a bit clumsy."

So why will Wells Fargo make it work when others have failed to reach such numbers for varying reasons, including the institutional resistance that so many observers have referenced?

"It is part of the DNA of Wells Fargo," Zuercher says. "Our business is very much focused on the customer and how do we help the customer to succeed financially."

Zuercher says he estimated that Wells Fargo banking customers pay about $2 billion in insurance brokerage fees each year. "So if we are only getting $100 million of that, we have got a long way to go," he says.

Team members in the 80-some sections of the bank, as well as the insurance agency, have developed the kind of connections needed when any team member sees a customer need that could be fulfilled by Wells Fargo that is currently met by another institution, Zuercher says.

Campbell says that the intensity of the bank's senior management commitment to cross-selling cannot be over emphasized when it comes to ultimate success. He noted that in a recent joint Reagan-ABIA study, 66.2 percent of officials of banks with insurance businesses say their primary goal was to increase noninterest income, while 31 percent say the goal was to expand product offerings.

While increased cross-selling certainly expands fee income, Campbell says, "there are other faster ways of doing that such as implementing an agency acquisition strategy."

Those banks among the 31 percent do more than offer cross-selling pep talks. "They often develop referral programs, but some of those create problems in that they may create the wrong kinds of leads or set the wrong kind of expectations and actually defeat the purpose," Campbell says.

Valerie Barton, executive director of the American Bankers Insurance Association, says those banks that have successfully cross-sold insurance brokerage services have cited building up trust between the two units of the operation as the key to success.

"What they have found is that the lender is going to do what is best for his customer, so the commercial producer is going to have to earn their respect and help them understand what the value add is," she says.

Both the lender and the commercial insurer have their "sweet spots" in which they succeed generally far above their competition, whether it be a certain industry or market segment.

"So just like a bank can't lend to everyone, every agency can't insure every type of risk because they don't have the market or the expertise or the carriers," she says.

Thus, lenders and producers understanding each other's strengths will ultimately fuel a more successful partnership, she says.

A second key to success is for agencies to work more closely with their carriers to determine their strengths in providing coverage. "So then when the agency is working with the lender, they can say, 'I have XYZ carrier, and they are interested in this line of business and they have a lot of expertise in helping us underwrite this.' "

This gives the commercial producer a great deal of credibility on the bank side.

While the Wells Fargo-Wachovia deal may fill in a lot of blanks geographically with more bank branches and insurance offices in areas where both may have been lacking previously, Barton says that such considerations don't matter all that much today.

"That may have been a huge barrier to entrance in the old days before e-mail and upload-download, but that is less important now since we don't have so many geographic and communication barriers," she says.

Some incentive strategies have worked with varying degrees of success.

Barton says that in one case she was familiar with, a bank created a bonus pool for lenders to refer business to the agency. "And that is immaterial to most because it is all about the customer wants. And so they did not have any quotas or goals," she says

Referrals also must go both ways. "If you are a commercial producer and you have dealt with someone for a while and you know they are not a customer of the banks and they have plans for expansion, you are always keeping them in mind as a good prospect for lending or other bank services such as a trust arrangement or even a simple thing like a checking account," she says.

But experts say in general that cross-selling beefs up insurance agency revenues rather than the banks'.

Some bank-owned agencies do have quotas. "But they are generally more for personal lines than commercial lines," she says.

But in the end, it all comes down to trust. "Banking and insurance are very different animals, and there are lots of misperceptions on both sides of the coin. So it is very important that senior management help all parties understand that this can be a win-win situation," she says.

For large agencies that are amalgams of many mergers, it may take a while for those agencies to firmly integrate themselves into the overall program. "And that may not be the first priority in getting the agency integrated into the bank culture," she says.

Campbell says the synergy works best when the producer drives the process by going to a lending officer and saying, "Here are the carriers we are working with, here are their appetites for where we are pursuing risk, so let's talk about your book of business so maybe we can pick off one or two to see maybe if can go and talk to them."

"That is generally more effective than just asking the lending officer to 'send us a couple of referrals every month,' " he says.

Campbell agreed dollar incentives do not work very well with motivating lending officers for ginning up brokerage business with their customers. "What works best for the lending officers is knowing they are building up the value of their trust relationship with their customers."

In a similar vein, some of the lending officers' customers could see some value in switching their insurance business to the bank, not necessarily for any material advantage they may gain when it comes to credit approval, but with the overall goal of cementing a relationship critical to the success of any business, Campbell adds.

But in the end, both the banker and insurance producer can sense when their customer is happy with their current arrangement and do not necessarily want to make any switch in the name of putting all their financial service eggs in one basket.

"So it becomes a very delicate dance on both ends that they have to go through that they are fulfilling their needs on both sides," Barton says.

While Wells Fargo remains focused on the middle market in its insurance operation, its acquisition of ABD through the Great Bay Bancorp merger two years ago, as well as Palmer and Cay through the Wachovia deal, gives it some entry into the larger Fortune 1000 risks to the point that the new operation claims a nearly 10 percent representation.

Zuercher says that for risks such as environmental and directors' and officers' risk, specialist brokers remain on call for the national operation because it would be cost-prohibitive to provide them in hundreds of offices.

"The model then becomes 90 percent of the business done locally and brings in the experts when needed," he says.

The events of the autumn of 2008 have turned the banking world on its head in ways in which it remains impossible to fathom overall, no less on how it will impact the financial supermarket concept. But Barton and other observers want to put the crisis in context.

"Clearly, there is a segment of the market that is struggling. But banks are still lending, and if your business is still in place, whether it is doing well or not doing well, you still have insurance needs," she says. "While there may a crisis of confidence in the world in general, life does go on."

February 20, 2009

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