It was supposed to be the perfect union of two compatible industries: Banks wanted to find new ways to gain customers, insurance companies wanted new ways to push their products. And while many bankers have successes to tout, the path to a happy union between the two industries has been littered with unforeseen hurdles, not to mention a few very visible blowouts.

A spate of new research shows that banks that dove into insurance sales have generally done better than those that didn’t. But logistics have proven to be a sticking point. Culture differences between insurance and banking personnel, as well as the practicalities of selling the products, have created obstacles that proved insurmountable for some institutions.

Now, the current soft property/casualty market might prompt more banks to either buy insurance companies or sell their insurance arms, depending on who you ask. Some banks might find it a good time to buy cheap agencies, while those that struggled to bring in revenue might ditch the businesses they’d once so heartily embraced.

Divestiture came earlier this year for Waterbury, Conn.-based Webster Financial Corp.’s Webster Insurance division. Combining insurance and banking was not the seam-less fit everyone imagined, said president and COO Bill Bromage.

“People thought it was going to be easier than it is – [insurance] is a fundamentally different business,” said Bromage shortly after last month’s announcement that the bank would sell off Webster Risk Management, the remaining piece of its erstwhile insurance venture.
Nationally, research numbers paint a cheerful outlook for banks. Mike White of Michael White Assoc., a Pennsylvania-based research firm, said his company’s upcoming an-nual report shows that banks that sell insurance are better off than those that don’t, regardless of bank size.

The nearly 3,500 banks nationwide with insurance activity showed median net income at about $1.6 million in 2007, while the 4,000 without had about $760,000 in income for the same period.
But plenty of banks have thrown in the towel, finding that insurance wasn’t the moneymaker it was supposed to be.

Culture Shock

Webster had jumped into the insurance business with gusto in 1998, eventually buying eight Connecticut-based insurance companies and building Webster Insurance into one of the largest middle-market insurance brokerages in the region, with offices in Connecticut, Massachusetts and Rhode Island.

But in February, Webster announced it was selling Webster Insurance. Bromage said personal insurance simply wasn’t selling well enough, largely because the bank had set up a referral system that failed, quite simply, because bank employees with little knowledge of the insurance products were expected to refer customers to the bank’s in-surance arm. A referral alone often isn’t enough to get customers to connect with insurance agents, he said.

The company didn’t integrate the two parts well enough, he said: “We never really explored that as robustly as we could have.”

With the company reporting first-quarter losses and a soft property/casualty market bogging profits down further, it didn’t make sense to keep Webster Insurance around, he said.

Webster is just one example of a bank that thought better of dabbling in insurance. Citibank made its groundbreaking merger with insurance giant Travelers Group in 1998, in what former Citibank CEO John Reed recently called a “mistake” that failed to benefit the investment services investors, customers and employees, according to an April Financial Times article. Travelers became an independent company again in 2002.

But look past the large-scale disappointments, and the banking industry is generally cheerful about insurance sales.

“We’ve seen stunning successes in all categories,” said Valerie Barton, executive director of the American Banking Insurance Association. Barton acknowledged that some banks have found insurance unsuitable, but said the combination of banking and insurance has typically has benefited both companies and consumers.

And researcher White’s positive findings echo a May 8 study by the Maryland-based Bank Insurance Market Research Group, which reported that among banks with $10 million or more in assets, those that sold insurance scored 15 percent higher in median net income in 2007.

White said while the soft property/casualty market is likely to attract a few banks looking to buy insurance companies, it’s less likely that banks will be cast off their insur-ance businesses because of current market conditions.

“Most banks that got into the insurance business in a serious frame of mind would not be so quick to quit it,” he said.

Robert F. Rivers, president of Boston-based Eastern Bank, disagrees. He says he wouldn’t be surprised if less-successful banks saw the soft market as a good time to sell.

But Rivers doesn’t count his own bank in that category. Eastern has seen steadily rising insurance profits over the past several years. Insurance revenue has increased, as well, going from $32.8 million in 2005 to $35.4 million in 2006 and $40.7 million last year, out of $300 million in total revenue, according to Eastern spokesman Joe Bar-tolotta.

“Clearly, we’re doing something right,” he said.

Eastern sells property/casualty insurance from underwriters such as Quincy, Mass.-based Arbella Insurance or Webster, Mass.-based Commerce, Bartolotta said. Beginning in 2003, the bank bought Allied American Insurance and created a strategy to integrate insurance and bank products, often putting agents for both under the same branch roof.

The battle for insurance customers in banks often has been won or lost on the simple matter of how customers are approached. Webster’s Bromage described a situation where bank employees didn’t have enough insurance know-how to draw banking customers in, but Eastern approached front-line sales differently.

Rivers described three broad types of employees at Eastern: some agents are fully versed in banking products, others in insurance and a third type has some knowledge of both. That third type is often the first employee the customer speaks with, and has enough knowledge of all products to draw the customer in and direct him or her to an agent who can go into detail.

Eastern made an effort to integrate insurance and banking personnel, working on creating a better corporate fit, Rivers said, noting that many banks and insurance agen-cies struggle to work effectively because the two types of employees come from very different cultures.

Insurance agents work largely on commission, while bankers often are in salaried jobs, he said, which creates separate mindsets for the two groups that can be hard to reconcile if you’re not prepared to deal with it.

“[Many banks] really didn’t look at the culture differences,” he said.