Does Your Bank Have an Operating Subsidiary- Licensed for Insurance?

Over the years, most financial institutions in Michigan, as well as across the country, formed operating subsidiaries and licensed the sub for insurance. What was initially dubbed “shell agencies”, the objective was simple: have a vehicle to be able to capture insurance commissions without having to buy, operate and manage a fully operational insurance agency. The concept was to outsource any insurance related functions to third parties and enter into commission sharing agreements.

Over the last few years, we have spent much of our time assisting other sectors of the financial services industry with the formation and insurance licensing of subsidiaries, especially the mortgage industry, that have the same objective- in this case, to create a legally licensed vehicle to be able to offer insurance products to their customers as an integral part of the mortgage transaction - and legally receive commission-based compensation.

While generation of revenue is a primary reason for the insurance sub formation, there is a very clear understanding in the financial services industry that using core product related insurance products to enhance the customer experience in the transaction is critical to compete, long term.

Given the number of Michigan banks that have insurance licensed agencies and given the transparency that now exists at DIFS to monitor compliance, we have been working with CBM to provide a service to assist in making certain that any DIFS related issues are monitored and in compliance.

While these agencies have been in existence for some time, many have not been top of mind. Having an insurance licensed agency can provide a source of recurring revenue as well as valuable customer service- with little effort or expense.

Key areas of potential utilization:

Bank Purchased Insurance. Community banks spend material amounts on various insurance products- bond, D&O, P&C as well as employee benefits. Many banks have negotiated referral levels of commission share on these products between the licensed agency and the insurance broker. Sharing of referral based commission is very common in the insurance industry.

Joint Ventures. We have assisted many banks with forming joint ventures with local insurance agencies. Referring bank customers to a highly trusted local agency for such products as commercial insurance coverages, crop insurance and estate based high end life insurance needs provide confidence for the customers- and referral share of commission to the agency.

Affinity Direct Marketing. Another easy, no-cost solution for community banks is utilizing customer affinity direct marketing programs. One of the most important direct marketed products historically has been Checking Account “free” accidental death (AD). Newly reformatted products have recently been introduced providing additional customer benefits and significant commission levels for bank agencies. This is an especially important, value add, no cost benefit as community banks look for ways to increase checking accounts as well as generating a recurring source on non- interest revenue.

Other direct marketing products have included term life insurance, final expense, prescription discounts and home warranty.

Bank Web Site Platforms. New, high tech, highly sophisticated white labeled platforms are now available for Michigan community banks. Key bank core product related insurance coverages include homeowners, auto and loan specific term life insurance for SBA and mortgage loans.

The bottom line is this. If you have not revisited your insurance agency recently, perhaps now is a good time. The agency is low cost, easy to maintain- and can provide the platform for material levels of revenue- and value add customer and core bank product driven products.

If you do not have a licensed insurance licensed sub, we can assist in the formation. Easy, and low cost.

We welcome the opportunity to have these discussions with you.

Contact Kate Angles at your CBM office today at 517.336.4430 or kateangles@CBOFM.ORG or Jim Harvin at 517 351.4158 or jharvin@jlhassociatesllc.co.