Blending Banking and Insurance.

There was a time when banks and insurance companies mixed like oil and water. But the passage of the Gramm-Leach-Biley Financial Services Modernization Act of 1999 has created some unlikely, and profitable, marriages .They are marriages of convenience, to be sure.

Insurers are now seeking partnerships with banks to gain access to banks' large clientele. And banks are selling insurance products to offer more services for their customers. (See "Banking On Sales," page 27.)

The idea that banks will add dedicated drive-up windows for selling and servicing insurance policies may be a little premature. But banks already are selling billions of dollars' worth of annuities, and bank sales of life and health insurance rose $100 million from 1999 to 2000 reaching $422 million. Banks made up more than 11% of all U.S. variable-annuity sales in 2000.

Competition between banks and insurers is being supplanted by cooperation. Insurers are finding that they can sell more products through the bank channel. Massachusetts Mutual Life Financial Group, for example, has partnered with nearly a dozen banks to market the company's insurance products to banking customers. Banks are buying insurance agencies to gain clients and add services and products. By purchasing the agencies, banks eliminate competition and gain valuable expertise in insurance sales. In the past two years, Stoneham Savings Bank in Massachusetts has acquired two insurance agencies with combined premium volume last year of $10.5 million.

These mergers, acquisitions and partnerships are blurring the line between banks and insurance companies. What remains in their wake are financial-services organizations that can deliver multiple products and services.