Tossing Tradition

In the cohesive world of financial services, stocks and bonds are offered alongside checking accounts and insurance policies.

March, 2002

Before State Farm Insurance Co. entered the financial services market in March 2001, the company did a nationwide survey of its customers to determine the feasibility of cross-selling insurance with consumer finance products. Would State Farm customers benefit from the additional services, and, if so, what types of services were they seeking? Would clients be willing to sidestep the traditional methods of purchasing annuities and making investments, all for convenience’s sake?

State Farm executives worried that the convergence might do little more than baffle customers and complicate the marketplace. As it turns out, the responses were overwhelmingly encouraging. So much so that not only did State Farm begin licensing agents to sell securities, but the company also made a foray into “virtual” banking. That is, although there isn’t an actual bank “building” per se, clients are able to access their State Farm bank accounts through the company Web site or at their agent’s office. The banking services have only been offered in Hawaii since January, although nationwide, the bank has already grown to about $1.3 billion in assets, says Carolyn Fujioka, director of public affairs for State Farm Insurance.

“The goal is to have our agents be very diverse in their ability to meet a customer’s financial needs, whatever they may be,” says Fujioka, of State Farm’s 10,000-plus agents licensed to sell securities. “What we’re trying to do is simplify the marketplace by creating one simple process for people to enter the market.”

Gary Kimata, regional director for Manulife Financial, says insurance companies today simply cannot afford not to offer a broad range of financial services on top of insurance. “What insurance companies today are marketing very heavily is variable annuities and variable universal life (insurance products with the cash values invested in products that look similar to mutual funds, but are not),” he says. “Any life-insurance company today not offering these products is losing a large segment of the financial market.”

But how exactly do insurance companies, whose agents specialize in insurance sales, expect to compete with full-service financial houses whose agents eat, breathe and sleep stocks and bonds? “We’re really not trying to,” says Fujioka. “We are trying to reach our customers who, like 50 percent of all people in our country, haven’t ever invested in the stock market. In terms of marketing, the primary purpose of our entry was to meet this customer demand for our existing clientele.”

Kimata agrees: “Frankly, we each have our specialties. Surely the sale of stocks and bonds requires a certain expertise and time, which insurance agents do not have. These are best sold by wire-houses, which have the facilities available to them to specialize in these markets.”

Adversely, financial brokers are at a slight disadvantage when marketing insurance to their clients, as they spend the majority of their time studying financial markets.

From a marketing standpoint, the model makes most sense to retain existing customers and to broaden the insurance companies’ scope of services. “I think that the insurance broker is a financial planner, just as we are, and in my opinion they do a very good job at it,” says Paul C. T. Loo, senior vice president of Morgan Stanley Dean Witter Pacific Region. “As financial planners, we’re all trying to offer the best customer service and convenience to our clients, so sure, it makes sense for them to offer mutual funds and annuities.” The blanketing of everything financial by banks and investment and insurance companies mirrors the inclination of the general public to make society more efficient as a whole. In a world where consumers check their e-mail on their cell phones, and do their banking on line, it was only a matter of time before they sought a single institution to handle all of their financial needs, as well.

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Jacy L. Youn