Banks, insurance companies contend for relationships

Ten years ago, people banked at banks and bought insurance from insurance agents. Now customers are likely to find banking services at insurance companies and insurance offered at banks.

For the companies that provide the services, it’s all about keeping a strong relationship with loyal customers.

“Companies are positioning themselves to capture the customer attracted to a relationship,´ said Ed Gabrielsen, regional financial services leader for Allstate’s West Central Region, a nine-state region that includes Colorado.

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Allstate, known as an insurance company, started Allstate Bank about five years ago. It’s a virtual bank, which means there are no branch locations, but it doesn’t mean everything is done through the Internet. Customers can do most business with the bank through an Allstate agent.

The Gramm-Leach-Bliley Act, passed in 1999, opened up competition among banks, securities companies and insurance companies. It relaxed the ownership rules so that a financial services company could own a bank, an insurance company and an investment firm, said Colorado State Bank Commissioner Richard Fulkerson.

The impetus for passing the act came when Travelers, a financial services company that offered everything but banking, bought out Citibank in 1997.

Some consolidation among companies has occurred since the act was passed, although not as much as some industry experts predicted. But some think the future will bring a lot more crossover between banking and insurance.

“Five years from now, I think you’ll be seeing a lot more banks offering insurance services,´ said Cody Fullmer, Fort Collins branch manager for Bank of Colorado, which started offering insurance a few years ago.

Insurance revenue is increasing at banks. Banks generated $21.2 billion in insurance revenue in the first half of 2005, compared with $20.9 billion during the same period in 2004, according to the American Bankers Insurance Association. The association reports that more than 85 percent of banks with more than $10 billion in assets do some sort of insurance business.

Local partnering

About three years ago, Bank of Colorado in Fort Collins bought Linden, Bartels & Noe, a Northern Colorado-based insurance company. The bank also started partnering with Raymond James Financial to offer investment services.

The insurance company retained its name and set up shop next door to Bank of Colorado’s location on Harmony Road and McMurry Drive in Fort Collins. The bank is also planning a location for the 2534 development, and Linden, Bartels & Noe will have an office in the same building, said branch manager Fullmer.

“The insurance gets more profitable for us every year,” he said. “But we didn’t just strictly bring it in house and let the bankers take over. We allowed the people who ran the insurance company to continue to run it.”

Bank employees mention the insurance services to customers involved in projects for which they might need insurance coverage, Fullmer said.

By the same token, insurance agents for companies like Allstate and State Farm Insurance tell their customers about the banking services offered through both companies’ banking subsidiaries.

State Farm got a charter to start State Farm Bank in 1998. The bank went nationwide in 2002. At the end of February, it reported $12.4 billion in assets, placing it among the top 1 percent of banks nationwide in terms of asset size, said Fraser Engerman, spokesman for State Farm’s corporate offices in Bloomington, Ill.

Full range of services

State Farm and Allstate banks offer a full range of financial services, including checking and savings accounts, certificates of deposit, home and car loans and individual retirement accounts.

“Our bread and butter is and probably always will be auto and home insurance,” Engerman said. “But for our purposes, the bank has been another tool to deepen the relationship with the customer. We can insure a customer’s car, but we can also give them a loan for that car.”

Gabrielsen of Allstate said banking services offer something different from other insurance companies like Progressive or Geico, which do most of their business through the Internet and phone.

“Those companies appeal to a customer more interested in price than a relationship with an agent,” he said.

The increased competition among banks and insurance companies also means banks have to compete with insurance companies for large loans.

“We’re not just competing with other banks anymore,” Fullmer said. “For the big loans we’re competing against companies like St. Paul Travelers.”