US banks that sold insurance during 2008 were generally more profitable than those that had no involvement in insurance, indicates a study by bancassurance data research firm Bank Insurance Market Research Group (BIMRG).
The BIMRG’s conclusion was drawn from analysis of data published by the Federal Deposit Insurance Corporation covering 7,563 commercial banks and savings banks across all total asset categories.
Overall median net income for all 7,563 banks fell from $1.071 million in 2007 to $686,000 in 2008, a decline of 36 percent, noted BIMRG managing director Andrew Singer.
“Nonetheless, the data suggests that pursuing a diversification strategy – of which insurance brokerage is often a key part – may have again paid off for banks in 2008,” Singer continued.
“Particularly at a time when banks’ traditional income sources are under pressure, an insurance agency business can help smooth out earnings and act as a hedge against interest-rate volatility.”
Specifically, 3,338 banks (44 percent) of all banks analysed reported some insurance activity in 2008.
Those banks with some insurance activity reported a median net income of $1.16 million in 2008, which was 69 percent higher than the median for all banks analysed.
In 2007 banks with some insurance activity achieved median net income 44 percent above the median income of all banks analysed.
This trend toward higher median net income was evident in all asset-size categories with the exception of the largest banks defined as those with assets of $10 billion or more.
For example, among 470 banks in the second-largest asset category – $1 billion to $10 billion – those with some insurance activity in 2008 – about half the total – scored 23 percent higher in median net income than those with no insurance activity.
This trend was more pronounced in smaller banks.
For example, in the lowest total asset category – under $250 million – the median net income of the representative 5,243 banks was $469,000 in 2008 while among the 2,136 banks with some insurance activity the median net income was 76 percent higher at $825,000.
Overall BIMRG found that in 2008 the key median ratio of non-interest income to total bank revenues among all 7,563 banks was 14 percent in 2008 while for banks with some insurance activity the media ratio was a notably higher 17 percent. Both ratios were unchanged from 2007.