Trade Groups Join Insurers In Thrift Efforts
Thrift charters allow insurers and agents to offer most financial products available through banks. Insurer-owned thrifts could change how insurance agents do business and how consumers shop for financial services.
Currently, an insurance agent can sell a car buyer an auto insurance policy. With the backing of a thrift charter, that same agent could also offer the consumer an auto loan and credit insurance. Or, the agent could sell that consumer a home-equity loan or line of credit to cover the cost of the car.
That opens up a different world, said Ed Armstrong, president of member services for IIAA, Arlington, VA. There will be a bigger bite of the apple.
Once the details of the marketing products are worked out, the efficiencies of such an operation are breathtaking, he said. Our agents are our loan production officers. We'll have the software that will enable our people through an 800 number to get loan approval or disapproval in three to four minutes.
While Indianapolis-based NAMIC and IIAA are both moving into the thrift arena in an effort to preserve the independent agent distribution network, their approaches will be quite different.
Both plan to offer basic banking products to the public. IIAA's InsurBanc will offer them directly to independent agents while NAMIC's First Assurance Bank will offer products to smaller, regional companies that can't afford their own thrift. Those member companies, in turn, will offer the product line to the independent agents they work with.
Many of our members are trying to find ways to cement that relationship, with their independent agents, said Larry Forrester, NAMIC president and chairman of First Assurance Bank. That is what is driving the association. The companies have a vested interest in that agent continuing to be successful, being more independent and not selling out to banks.
The IIAA sees its role a bit differently. Not only will it offer banking products to independent agents clients; it will offer many of its banking services directly to the agents themselves. Many smaller agencies have difficulty financing expensive business activities, such as buyouts of employee stock options, Armstrong said. Our members have a hard time cashing out. We could provide them with that ability. We think that would be a tremendous advantage for our members. We understand the agents and their needs and we will be able to provide the products and services important to them, he said.
Mark Olson, partner and national director of regulatory relations at Ernst & Young, Washington, DC, sees the thrift holding company as a transitional vehicle for insurers. Sooner or later, Congress will have to provide some sanity to the financial services terrain, he said. All new insurance regulations for banks are being done via requests for new powers (from the Comptroller of the Currency). In fact, everything that is being done now is plowing new ground. There are no guidelines.
Olson believes that within 10 to 15 years Congress will finally create a form of financial holding company that will allow insurers and banks equal footing in the financial services market. In the meantime, the insurance industry will continue to use the thrift option to market banking products.
Insurers have had the legal right to move into the thrift business since the 1950s, said Steve Johnson, assistant vice president and senior counsel for the American Insurance Association, Washington, DC. But insurers didn't take advantage of that power until recently. In the late 1980s, following the savings and loan crisis, the federal government looked for commercial companies to take over sick thrifts using a unitary thrift holding company. Until that time, there were only about two dozen such operations in the nation.
Thrifts can compete with retail banks, Johnson said. They can offer trust services, custodial services, credit-card operations, retail banking and mortgage-related services. A thrift must maintain 65 percent of its assets in mortgage-related services, which broadly include consumer home loans, credit-card receivables and asset-backed securities, he said.
While Armstrong of the IIAA foresees great cost advantages to setting up one shop and offering thrift services via thousands of insurance agencies throughout the nation, Robert Hunter, director of insurance for the Consumer Federation of America, disagrees. Its not going to work, because insurers will still have to compensate agents selling banking products, he said. People are going to look at the bottom line. The bottom line is: What is it going to cost?