Trusted Relationship Extends to Banking and Financial Services
By James Lunders, Insurance Agent
Insurance companies, the good ones that is, have built trusted relationships with their clients. There is a bond that occurs between the people of a community and those who help them in their hour of need.
Over the past few years these trusted insurance companies have moved toward helping their clients in other forms of finance and financial planning. Insurance companies are now big players in the banking and financial management arenas. They have taken a holistic approach to helping clients not only protect their wealth but grow it as well. Today you will find an article published by the Associated Press that addresses this very issue.
Wednesday, December 19th, 2007
(c) 2007. The Associated Press. All Rights Reserved.
DES MOINES, Iowa (AP) - Your insurance company is likely handling more than policies these days. Investments, retirement plans, even car loans and checking accounts have been added to some service portfolios as insurance companies expand into the traditional realm of banks.
Accelerating the trend are baby boomers looking to build their wealth before retirement.
Many traditional insurance companies — with slogans like Allstate’s “You’re In Good Hands” and State Farm’s “Like A Good Neighbor” — have cultivated relationships of trust in insurance. They appear to have succeeded in transferring that trust into banking and management of their customers’ retirement assets.
A Forbes magazine ranking of the nation’s top 25 financial services companies, based on 2006 revenue, included 10 insurance companies, including State Farm, MetLife, Allstate, Prudential Financial and New York Life Insurance.
Bloomington, Ill.-based State Farm Insurance Co., the nation’s largest auto and home insurer, branched out into banking in 1999 and into other financial services areas a few years later. Through its 17,800 insurance agents in the United States, the company offers mutual funds, savings accounts, even car and bank loans.
“When you purchase a new auto, you need to perhaps borrow some money to purchase the vehicle and then you need to buy some insurance. When you’re purchasing a new home, you need a loan, obviously, and you need insurance,” said State Farm spokesman Dick Luedke.
“It’s planning for your financial future and insurance is part of that and banking is part of that and investing is a huge part of that.”
State Farm, a mutual company therefore not publicly traded, still makes most of its profit from insurance. Banking and mutual funds make up just 2.6 percent of the company’s accounts.
Yet State Farm’s bank held $13.7 billion in assets as of June 30, according to the Department of Treasury, ranking in the top 1 percent of all U.S. banks based on total asset size. Its retail mutual funds business closed 2006 with nearly $3.9 billion in assets under management, a gain of about $1 billion last year, its fifth year in business.
Bob Hartwig, an economist and president of the New York-based Insurance Information Institute, a nonprofit trade group, said many insurance companies have branched out to broaden their revenue stream.
“The traditional insurance industry is very cyclical and can have some very bad years, such as years when there are major catastrophes,” Hartwig said. “For decades, federal law prohibited insurers from getting into banking and financial services but that depression-era legislation was swept away in 1999. For the last eight to nine years, insurers have been able to get into this in a big way.”
Des Moines-based Principal Financial Group Inc., founded in 1897 as a mutual life insurance company serving bankers, took advantage of the regulatory changes to transform itself, becoming the nation’s leading 401(k) retirement plan provider.
Only a quarter of Principal’s operating profit still comes from individual life and health insurance. The rest comes from managing securities, real estate and other investments in the United States and abroad. The company provides asset management and retirement services in Argentina, Brazil, China, Chile, India and Mexico.
Principal CEO Barry Griswell said the insurance industry’s transformation is due to the attractiveness of the financial services industry.
“The fact that we have the aging of the population, we have a lot more wealth created in this country. We have more families in the higher income levels creating a lot more savings,” Griswell said in a September interview. “We have everybody positioning for the future of the baby boom generation as they really ramp up their retirement savings.”
The baby boom generation is Principal’s growing focus, he said.
“When they start retiring, those assets they’ve accumulated primarily out of 401k and others will flow largely into individual IRAs,” Griswell said. “So probably the one area we’re putting most emphasis on going forward … will be the retail mutual fund. We currently have $50 billion in assets under management. I would like to see that get to $100 billion fairly soon.”
The trend is not expected to peak for many years, he said. Baby boomers are just nearing retirement, and those born at the peak of the boom in 1957 still have a decade or more of work ahead of them.