National City Insurance Group
...nk sees its assets pass the $1 billion mark. 1970: National City Bank puts a comprehensive customer information system online and several months later introduces a combined monthly statement, the Money Manager, for its customers. The first provides operations support, cutting internal costs and allowing managers easy access to information. It also prepares National City Bank well for a future that promises even more extensive use of computers. The money manager benefits bank customers by summarizing their dealings with National City Bank in one comprehensive statement. 1971: National City Bank is the first Cleveland bank to install cash dispenser machines. 1972: National City Bank opens a new operations center. It houses the bank's consumer credit division and all operating functions. At its core is a large, modern computer center. National City Bank's assets pass $2 billion. 1973: A new holding company, National City Corporation, is created with National City Bank (its name shortened from National City Bank of Cleveland) as its lead bank and primary subsidiary. The new structure is formed to give the bank more flexibility in operations and to allow it to broaden its service offerings either through acquisitions, by forming other subsidiaries or by adding new activities such as mortgage banking and data processing. Furthermore, the change will let the company expand its banking services beyond Cuyahoga County. Existing state law restricts banks branching outside home counties, but will not prevent acquisitions of more banks by a holding company. 1973: Responding to customer surveys, National City Bank extends its retail banking hours, lengthening weekday service and opening most offices either on Friday evening or Saturday. 1974: National City Corporation begins a cautious, well-planned acquisition program, buying up smaller banks for cash. Its first two ventures involve its lead bank, National City Bank. In 1975, it purchases the assets of the failing Northern Ohio Bank for $3.7 million. In early 1976, it spends $3.8 million acquiring The Bank of Cleveland. 1975: National City Bank, the state's largest correspondent banker, is the first to begin lockbox collections in Cleveland and the first in the city to operate actively overseas. National City Bank designs and implements a new program that facilitates the direct deposit of Social Security Checks. Corporate customers soon adapt the system for use in the direct deposit of payroll checks. 1980: National City Bank earnings decline slightly for the fist time in 17 years. 1982: National City Bank reports a resumption of growth in annual earnings. 1987: In the fall, stock market prices plunge 508 points, leading to comparisons with 1929. The event is labeled the "Crash of 1987." 1988: National City begins implementation of a full-service platform automation system for the branches, whereby customer information can be called up on a computer screen immediately, new accounts can be opened, and loan transactions can be processed. 1991: The completion of a three-year project to consolidate all back office systems and operations, saving more than $20 million per year, puts National City well ahead of its competitors in the banking industry. 1994: National City develops the corporate automation system (CAS), which will enable corporate banking to provide improved customer service and improved credit quality. 1995: National City celebrates its 150th Anniversary with $32 billion in assets, 640 branches and 20,000 employees. For the fiscal year ending December 2003, National City Corporation reported $9.59 billion in sales (nearly 10% one-year sales growth), $2.1 billion ($3.43 per share of stock) in net income (32.3% one-year net income growth), and 33,331 employees. Their five-year stock chart looks like the following: The stock dipped to its lowest point on 5 May 2000 when it was valued at $16.00, while the company enjoyed their highest value in the last five years of $39.66 on 8 October 2004. Over the past several years National City has been gearing up into an acquisition mode. 1996 found National City merging with Integra Financial Corporation. In 1997 and 1998 they reorganized their six Ohio banking subsidiaries under a single statewide charter and acquired First of America Bank Corporation and Fort Wayne National Corporation. 2003 saw National City taking on Allegiant Bank in St. Louis. In 2004 they purchased Cincinnati-based Provident Financial Group for $2.1 billion as well as Wayne Bancorp for $180 million. The Wayne Bancorp merger was relatively small for National City, but the company felt that the 26 branches with $825 million in assets in Wayne, Medina, Holmes and Stark counties give them immediate penetration into more rural markets right in their back yard. "This acquisition is part of the National City strategy for growth in our core banking business," said David A. Daberko, chairman and chief executive officer of National City Corporation. "Wayne Bancorp operates in communities that are contiguous to the existing National City branch network in northern Ohio, one of our strategic markets. We're looking forward to serving Wayne customers and growing our business in these new markets." Wayne Bancorp currently has a $500,000 community foundation. National City will match the size of the foundation, bringing the total fund to $1 million. The current members of the Wayne Bancorp board will make decisions about the distribution of community foundation funds. When asked about the specific types of banks that National City is looking to purchase, chairman Daberko had this to offer: “Not to be cute, but the best acquisition candidates are those that are for sale. Very few banks are interested in selling at any given point in time. Banks are sold, not bought, so there is an extensive ‘courting’ ritual in most cases. Having said that, we are interested in banks like Allegiant and Provident...not too big but big enough to matter, strong in their markets but able to be improved upon with our resources and products. (Regarding the purchase of a bank), nothing happens for real until the bank (for sale) decides it wants to merge. Once they decide, a negotiation process ensues. That's where a history of having shown interest pays off. We "courted" Provident for decades, never knowing if we would have the chance to do a deal.” The emphasis of this case study is National City’s adaptation of the employee benefits arm of National City Insurance Group (NCIG) to meet the demands of today’s service-oriented insurance industry. The establishment of proactive services in an attempt to set themselves apart from their competition brought their sales goals back within reach and allowed for the possibility of expansion looking forward. National City Insurance Group, Inc., was established in 1973 as an arm to sell credit life and disability insurance in order to guarantee home mortgages. This made for an easy target market; everyone who looked to secure a mortgage through National City Bank Today the insurance group has some 400,000 of these individual accounts on the books and it remains a profitable part of their business. As previously mentioned, National City Bank is the eighth largest bank in the United States. Similarly, National City Insurance Group has the seventh largest bank-owned block of insurance business, generating around $130 million in revenue annually. On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act. One impact of this repeal is that the Investment Advisor Act of 1940 now regulates certain advisory activities of the banks. Primarily these developments allow banks to sell insurance and financial products while allowing investment companies like J.P. Morgan and Merrill Lynch to involve themselves in banking. By mid-2001 the executives at National City began pondering how they could enter the market of employee benefits and take advantage of the cross-selling opportunities that would be afforded them by working through their existing base of customers. They had to decide what products they would offer; developing a unique product was too cost-intensive and bound to fail. The best options they had were to partner with a carrier exclusively or to offer any number of carriers like the independent agencies of the day. There were obvious problems with the idea of partnering exclusively with a carrier. If they chose a carrier like Medical Mutual of Ohio (MMO), they would have a fellow Cleveland corporation with whom to do business, but they would be restricted to Ohio for their insurance products. MMO did not write business outside of the state of Ohio. If they partnered with a national carrier like United HealthCare or Trustmark, they would be able to market in all of the states in which National City exists. However, in the insurance business they would find themselves in a position of revolving competitiveness, as no one carrier remains competitive in one demographic area for an extended period of time. Furthermore, no matter which type of company they chose, they would be unable to secure a special reduced rate for their customers in exchange for business in bulk because insurance rates are filed with each state and selling for anything below those established rates is known as “rebating” and is illegal. In the end they elected to file as an independent insurance agency, which would give them the flexibility to quote any insurance plan necessary in order to write business. At the same time the company needed to decide to whom they would market. For years the corporation had been selling credit life and disability policies to guarantee that homes, buildings and small business properties would be paid off in the event of the demise of their owners. But they also had thousands of small, medium-sized and large businesses throughout the footprint of National City. The breakdown looks like this: The first column depicts the number of employees in each business. 0-9 would be the “mom & pop” companies like a small doctor’s office or a local restaurant. Primarily these companies’ benefits are sold and serviced by small local employee benefit brokerages consisting of one to three brokers. Association programs such as the Council of Smaller Enterprises (COSE) also market directly to these businesses. The 10-250 market largely consists of manufacturing and medium-sized service industry companies. Generally, this segment is under-serviced by both small brokers (only provide quotes and reactive services) and large employee benefit brokers (focused on 251+ groups). Finally, the 251+ market is normally self-insured and would be the easiest to rule out as a target for NCIG. The benefits in this market are sold and serviced by large employee benefit brokerages such as AON, Marsh, Hewitt and Mercer. High touch, specialized broker services are the hallmark of this demographic. The decision was made to cede the 251+ market and concentrate on small business (0-9) and middle market (10-250) companies. Perhaps the most critical decision to be made was that of who was going to market the products for the company. The options were relatively simple. The corporate lenders, also known as relationship managers or RM’s, the small business banking officers (SBBO’s), and the retail branch managers had the most contact with area businesses. Other banks had tried licensing the bankers in these positions and train them to cross-sell insurance products. Most of those experiments turned out to fail miserably, as either the service on the lending side began to lag as the banker was bogged down with extra responsibilities, or a mistake was made by the inexperienced new insurance salesperson that made the bank look foolish. Luckily, they didn’t even consider that approach. Next on the list of options was to purchase outside agencies and incorporate them into NCIG. That option was only ruled out because at the time there were no established criteria for Insurance Group employees in regards to employee benefits. That would mean bringing brokers on board who were used to working independently with no sense of uniformity and no professional corporate atmosphere. It was decided that hiring licensed brokers with experience from the outside would be the best alternative. The President of NCIG, Tom Cook, set out to hire a Vice President. He found Bob Gearhart at Charter One, which had an insurance division that Gearhart had been building for a couple of years. He brought with him an employee who took over the NCIG office in Chicago to work with the corporate lenders there. Gearhart became the Insurance Group’s VP for the middle market. Russell Miller was hired on as the VP for small business and in short order built a staff of nearly 10 Account Executives that stretched from Cleveland to Columbus to Pittsburgh to Wheeling, WV. Gearhart filled the Columbus, Akron, Youngstown and Cleveland in that order over a period of 18 months, taking the Insurance Group to over $150,000 in annualized revenue by the end of 2003. The small business brokers on Miller’s team enjoyed some immediate success. The branch managers and SBBO’s were happy to make joint calls with them, as it gave them an opportunity to show the small businesses how important they were to the bank. They grew exponentially in the coming months. The middle market found itself struggling a bit, as the executives had overestimated the enthusiasm that they would encounter from the companies they called on with the corporate lenders. Those responsible for putting the employee benefits arm of NCIG together had seen the introduction of the employee benefits market as a value-added service for bank customers, but had overestimated the influence that the lenders had over those clients. The lenders were to take the insurance brokers out to existing bank customers as well as prospects in an effort to cross sell and build a stronger hold on those customers. Originally, the company had expected annual returns for the employee benefits programs to be as high as $750,000 by the second year. Even if business doubled in 2004 the company would be some $300,000 short of its goal. However, the group was still ultimately going to be profitable; it would simply take a bit longer to get there. With a company the size of National City Corporation behind it, there was no reason to throw in the towel already. The middle market employees got together try and figure out how they could improve business. They did so by putting the sales process under the microscope and seeing how they could improve on it. What they all discovered was that they had been doing business the same way every other agent had been doing business and that they were all tired of doing so. They determined that the typical process went something like this: January 5, meeting with prospect for the first time. You spend a little time building rapport with the prospect, then ask him if there’s anything particularly wrong with his insurance program that he provides for his employees. He says, “No, nothing I can think of,” so you ask him about his agent’s responsiveness. “He answers the phone when I call and gets back to me with the answers I need,” is his reply. You ask if there are any particular claims problems with the group, like the insurance company refusing to pay for some reason. “No, not that I know of.” Then, you ask to see a copy of the group’s policy and the latest bill. You peruse the paperwork until you’ve convinced yourself that you see a gap in coverage that you think you can fill for a fair price. You ask for a copy of the census, excuse yourself and speed back to your office so you can get right to work on the proposal. In a few days you have numbers back from your carriers and sure enough, the gap you found is filled and you can even save the group a few bucks. You take the proposal by the prospect’s office where he proceeds to tell you how impressed he is with your hard work. He asks for a couple of days to think it over, and you go back to the office and tell the boss that you think you’ve got a real shot at this one because you really hit it off with the prospect. When four days pass and he hasn’t called, you finally give in and call him. After several attempts you do get him on the phone and he politely describes how he ...