important part of the distribution mix for a number of US insurers
that have taken the plunge in recent years, some with online-only
offerings, others with more traditional bricks-and-mortar
operations. In an era in which insurance margins are tightening,
banking can serve as a rich source of alternative revenue.
The newest entrant in insurer-owned banking, Mutual of Omaha Bank,
began operations in 2007 with a more traditional bricks-and-mortar
approach. Mutual of Omaha bought three small regional banks in 2007
and has been quite outspoken about wanting more, declaring interest
in buying banks in Texas, Arizona, California, Florida, Utah and
Washington, plus some states in the north-east.
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The idea is to leverage Mutual of Omaha’s powerful national brand.
A bank that rivals Mutual of Omaha’s insurance side today would
have $19 billion in assets, making it the 68th-largest in the
country, and earn $165 million in a year. By using the savings bank
model, Mutual of Omaha can open branches around the country under
the authority of only one regulator, the US Office of Thrift
Supervision, rather than having to cope with the 50 state
regulators that oversee the insurance business.
Tiny in relation to their parents
By contrast, State Farm Bank, Principal Bank and MetLife Bank, all
divisions of large insurers, are tiny in relation to their parents.
Their combined $42 million in net income last year is less than 0.4
percent of their parent companies’ $10.6 billion combined net
income. State Farm Bank is the biggest of those insurer- owned
banks, with $13.7 billion in assets, 600,000 deposit accounts and
about 700 employees. The bank has the 19th-largest MasterCard-Visa
charge volume in the country. State Farm Bank is also a direct
banking player, relying on referrals from State Farm’s 16,000
agents, 96 percent of whom have been trained in banking
products.
One of the first entrants in the insurer-owned banking business,
Principal Financial, took the direct banking route way back in 1998
and has not looked back since. Principal Bank has not opened a
single branch, but over the past ten years it has developed a
national footprint. With more than 150,000 banking customers in all
50 states, the bank has more customers in California – over 17,000
– than in its home state of Iowa, its second-largest market with
just under 13,700 customers.
Unlike the many internet-only offerings that came and went, victims
of over-aggressive investment in bells and whistles so common in
the dot-com era, Principal took a much more cautious approach,
building only as its profit base allowed and using the bank as a
clever extension of its national insurance brand. While it was
happy to find new customers, it primarily targeted existing
Principal Financial customers, cross-selling to its insurance
customers.
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By GlobalDataWhen the internet boom imploded, Principal Bank was safe and sound,
its model well developed and its customer base stable, with more
than 13 million Principal Financial customers nationwide to
cross-sell to. Now, as it celebrates its tenth anniversary, the
bank will move into business banking this year, and will also
introduce a new bank product designed to help retiring baby boomers
better manage their assets.
As the bank has grown, so has its importance to Principal’s bottom
line. At the end of the third quarter of 2007, Principal Bank
reported quarterly net income of $3.09 million, a 56 percent
increase over third-quarter 2006 net income of $1.98 million. As of
30 September, the online bank had total assets of $2.45 billion, a
small but growing slice of the more than $215 billion in assets
under management by its parent company.
Over $4.5bn in deposits
Another direct banking player, MetLife Bank, is celebrating its
sixth anniversary with over $4.5 billion in customer deposits and
over 100,000 customers. MetLife Bank was launched to its employees
during a pilot phase in August 2001 and rolled out nationally in
November 2002.
From its beginning, MetLife Bank has been a low-price competitor,
using its direct banking model to lower operational costs and
attract online surfers with eye-popping rates. For example, MetLife
recently offered a 4.4 percent annual percentage yield on its Money
Market savings account (with a minimum $5,000 balance), compared to
a national average of 1.82 percent, according to http://www.banxquote.com/. On a
60-month Jumbo CD (with $2,000 needed to open), MetLife’s annual
percentage yield is 5.5 percent, compared with a national yield of
4.1 percent.
After doubling its customer deposits to $2.7 billion in 2004, it
reached $4.6 billion at the end of 2006. Many of those accounts
were started at its one and only branch.
Charles Davis
