June 2009

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Golden Moment: Will Carriers Get Serious on Banking?

By Sam Radwan

It has been roughly a decade since federal lawmakers cleared the way for insurance carriers to enter banking, yet progress has been more the exception than the rule. Only a few players have built up a lending business and profits have been scarce. Now there’s a chance to make up lost ground.

At a time when the U.S. mortgage lending crisis has brought the banking industry to its knees, the market is wide open for alternative providers of credit and deposit products. This spells opportunity for resilient carriers that have delayed exploiting banking expansion opportunities.

To be sure, not all carriers are poised to act. Troubled investments in mortgage-backed securities and commercial real estate continue to pose major headaches for some companies, and there are problems with collateralized debt obligations as well.

Yet many other competitors remain abundantly capitalized (especially mutual organizations) and could act now. There are three major types of opportunities to introduce banking products into regularly recurring types of insurance transactions:

• Cross-selling loans to auto insurance customers is a conspicuous opportunity, especially given the national crunch in auto credit.
• High-yield savings products are especially attractive at a time when businesses and households are focused on asset protection.
• Small business lending is a natural extension of the advisory role that field agents play in the outreach to small business owners.<

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