Changing roles. (Distribution: Industry Strategies).

Cross-selling agents who parlay property/casualty customers into buyers of life insurance and investment products find they are fortified against lower-cost competitors.

Jim Spachman had no interest in becoming a salesman 18 years ago as he entered the work force. His uncle told him the big money was in sales jobs with the likes of IBM or Xerox, but Spachman instead launched a nine-year claims career with State Farm Insurance, first in fire, and then in agency claims, where he became a superintendent.

But one thing he noticed at his job was that company agents didn't seem so much to be selling as they were helping people make important decisions. So when the man who recruited agents told him he could earn a lot more money as an agent, Spachman decided to give it a try.

"State Farm has a wonderful name, is known as a great company, and has great products," he said. "I just needed to come in and give great service. The hardest part now is letting people know what we've got."

Now in his ninth year as a State Farm agent, Spachman is one of the few producers industrywide who is good at that hardest part. He currently sells about 40% auto insurance, 30% homeowners/umbrella, 20% life and 10% mutual funds and bank products. He is a cross-seller.

The concept of cross-selling products has been around for decades. It seems logical, but it is harder to implement than one might imagine. Cross-selling requires higher levels of commitment from agents--extra training and licensing, more continuing education and higher expense. Insurers who promote cross-selling must have credible products in all lines. They may also need to provide better support and greater incentives to agents.

Cross-selling, however, rewards successful agents and companies. Property/casualty customers often have unaddressed needs in insurance and financial planning, and addressing them can lead to greater customer loyalty. "If I sell more lines, customers stay longer with me," said Spachman. "Even though it may be a small policy that fourth or fifth line cements the relationship. Customers won't leave me to save $8 a month from a discount carrier." Spachman employs five full-time staffers and a part-timer at his agency in Bloomington, Ill. His agency ranks annually in the top 1% or 2% of those selling State Farm products nationwide.

Cross-selling is where property/casualty companies want to go, said Rick Berry, a principal of Tilling-hast Towers-Perrin in New York, and the upside potential is great. Only about 15% of property/casualty customers own more than one insurance product, he said.

But the challenges are significant. Consumer expectation plays a role. If prospects perceive that an insurer or agency primarily sells auto insurance, for example, they may not consider an offer to sell life insurance credible Berry said. And the process of selling life insurance can be very different from what property/casualty agents normally do.

"Life sales are more complex," said Michael Cohen, a vice president in the life/health division of A.M. Best Co. "The incidence of property/casualty agents taking the time and effort to become expert in selling life products hasn't been as great as some people believe. They have been more successful with term as opposed to whole life, universal life or variable life."

Cross-selling by personal-lines agents tends to mostly reach middle-income Americans, a group that has been underserved by the industry for decades. "The subset of the population that buys complicated life products is smaller and more concentrated among the upscale," Cohen said. "They are much more likely to deal with someone more knowledgeable, in the areas of estate planning and small-business planning, for example."

Many property/casualty agents "just don't have the motivation to cross-sell life insurance and other financial services," said Cohen. "If you're making a good living selling auto and home, why go through all the effort?"

Making It Work

The major companies and agents that succeed in cross-selling have been at it for a long time. Among them are State Farm, Safeco, Allstate and Farmers. Hartford Life Insurance Co. tried marketing through the agents used by its property/casualty affiliate, but found banks, stock brokers, wire houses and financial planners were better. Berry said Nationwide Financial had a similar experience.

Eighty-year-old State Farm, the biggest writer of auto and home insurance in the United States, has about 16,700 agents in offices across the country. Those agents have formed solid relationships with many clients. "We are where you live," said Charles Gomez, who oversees the day-to-day operation of the agency department. "We're in your community, whether rural or urban. We're at your high school football games, and we go to your churches. It would be very difficult to start a company like State Farm today"

State Farm's agents (now technically independent) usually start with a client by selling auto policies followed by homeowners insurance. But their presence in communities and their relationships with clients allow them to have conversations about life insurance, health insurance and retirement plans, said Gomez. According to Spachman, the company provides financial help and training in other lines and securities, and it pays for all licensing. New agents must enroll in these courses as part of their training. Older agents, those "in the twilight of their careers," are not required to become licensed in other lines or securities, he said.

Of the 28 million households served by State Farm in the United States and Canada, more than 15% own State Farm life insurance. Some 98% of company agents have sold both property/casualty insurance and financial services, according to Gomez, and about 10,500 agents have securities licenses. State Farm Federal Savings Bank, launched in 1998, had $5 billion in assets at the start of this year. State Farm's mutual funds have continued to grow, even during the equity bear market, and had about $412 million in assets in April.

The company provides agents a software program, Insurance and Financial Review, that helps them maneuver through a financial planning conversation with clients, Gomez said. But these reviews seem aimed at the simpler needs of middle-income clients. According to A.M. Best Co. statistics, State Farm Life Insurance Co. issued about 764,000 ordinary life policies in 2002 with an average face amount of $98,662, small by today's standards. At year's end, it had $496.7 billion of life insurance in force, more than 60% of which was term life and more than 35% of which was individual permanent.

In 2001, State Farm formed an alliance with Phoenix Life Insurance Co. to offer advanced market products and services to its high-net-worth policyholders. "They realized that their personal-lines agents can sell some business in the upscale market, but a potentially more effective strategy is to have a partner that specializes in that market," said Cohen.

Broker Charlie H. Harrison IV who employs nine full-timers and a part-timer, has found cross-selling success similar to Spachman's. Harrison owns the Warwick Agency in Brookfield, Conn. In 2002, he wrote $3.7 million of business with four insurers, $2.7 million of which is with Safeco. Harrison estimated he writes 500 to 600 personal lines policies a year and more than 70 life policies. His goal this year is to break 100.

"Property/casualty is order-taking," he said. "Life is much more creative. Clients will say no 90% of the time. But it's financially and emotionally more rewarding." He sells primarily term insurance, but may replace a term policy with a variable universal life policy later in a client's life.

Learning the Business

Harrison said training, licensing and continuing education are part of the culture of a cross-selling office. "It's not a requirement of the industry or the state, but what you need when you're out on the street," he said of cross-selling. "We have to be able to bring value to clients other than price. Every month somebody in this office is off for training somewhere. We support education 100%." He admitted that securities training and licensing is "a big nut" in terms of effort and cost, but is necessary in today's world. Much of the Warwick Agency's insurance training is from Safeco's education department, which Harrison considers "unsurpassed."

Harrison also appreciates Safeco's new underwriting technology, Safeco Now, which allows an agent to bind a life policy online in as little as 15 minutes. Safeco handles the rest of the underwriting chores. "With the point-and-shoot technology, I'm on to my next appointment," he said. That's particularly important to an agent like Harrison, who puts in long hours when he's working but took off 16 weeks last year. "I'm extremely passionate," he said. "I work hard, and I play hard."

Safeco Corp.'s history is about as long as State Farm's, and the company has one of the largest property/casualty businesses in the United States. Founded in 1923, it added the Safeco Life Insurance Co. in 1957 and a mutual fund company a few years later. In 1997, under new president Randall H. Talbott, Safeco restructured to boost cross-selling opportunities within each of its distribution channels. It also improved efficiency in its back-office operations by focusing on the agent as its customer. Spokesman LeRoi Brashears said that before the changes, Safeco had been a "siloed company" The reorganization "has made it a lot easier for agents and advisers to become multiproduct distributors, and we've noted a big difference in the bottom line," he said. "We've had three years of record growth, and we anticipate a big acceleration in 2003 and 2004."

Greg Clarke, Safeco's vice president responsible for all life and investment sales through property/casualty agents, said he is surprised at the number of big insurers that have divested in order to focus on one product. "We've done the opposite," he said. "We tell our agents they can have more fun by learning to sell more things." Safeco has contracts with about 6,000 agencies housing 35,000 producers. Most started on the property/casualty side and then grew their businesses.

Through these property/casualty agents, Safeco sells universal life, variable universal life and term insurance. On the group side, it markets excess stop-loss, group life, group long-term disability, and health insurance for part-time and seasonal workers. The company offers a full range of retirement plans, 401(k)s, nonqualified and qualified individual annuities, immediate annuities and mutual funds. "We offer a multitude of products, we make it easy to sell, and we increase revenue flowing into an agency," Clarke said in summing up Safeco's strategy.

Motivational Factors

The motivation to cross-sell can come from a variety of sources. Some agents by nature look around to see where they can sell more, said Patricia Tilton, a partner with KPMG LLP's insurance practice in Minneapolis. Members of larger agencies and agents in rural communities in particular fall into that category, she said. Smaller agencies have incentive to cross-sell because they get pushed out of the market unless they do the bulk of their business with a single insurer, she said. And banks are selling more insurance to increase revenues.

Other agents are recipients of stickor-carrot incentives by insurers. Tilton said some companies require that agents sell one life policy for every two property/casualty policies, for example. Berry said other companies offer recognition, higher compensation or special reward programs to encourage agents to achieve a minimum of cross-sales.

Larger agencies are more likely to add specialists to their staffs who play a behind-the-scenes role, said Berry. Agents collaborate with them on cases as needed. Alternatively, insurers provide the specialty resource. "The property/casualty person remains the relationship manager and the lead dog, but has a resource he can call on that is quite good," he said.

Among property/casualty insurers, there's "a fair amount of deliberate effort to make this stuff happen," said Berry. "Nobody is sitting there and saying, 'Never mind.' The sentiment is, build it and they will come."

Critics of cross-selling argue that consumers empowered by the Internet are more than ever comparing insurance offers and are not likely to buy all of their products from a single issuer. But Berry said that a certain amount of self-selection is factored in to prospects who buy coverage through property/casualty agents. "You already have a customer inclined that way" he said. "If you're talking about a consumer who doesn't want to deal with an agent, he's probably not part of this target market anyway."

RELATED ARTICLE: MetLife P/C Companies Launch Cross-Selling Effort

MetLife Auto & Home Pool is growing fast, first by means of an acquisition and now by a cross-selling initiative.

In 1999, the group of nine property/casualty insurance companies bought the personal lines business of St. Paul Fire & Marine Insurance Co., which gave it access to 2,700 more independent agents and 60% more revenue. Before the acquisition, MetLife Auto & Home, based in Warwick, R.I., was heavily concentrated in the Northeast.

With triple the number of agents it had before the acquisition, the group has appointed about 1,400 of them over the past 1 1/2 years to a new independent-agent financial services division established to sell other MetLife products. "From the beginning, it was obvious to us that with many more points of sale, this was a great opportunity for us to open distribution points for our parent company in different lines and make us more valuable to independent agents by giving them access to these products," said Catherine Rein, chief executive officer.

Among MetLife affiliates benefiting from cross-sales are MetLife Financial Services, MetLife Bank, New England Financial, Texas Life Insurance Co. and GenAmerica Financial.

In 2002, MetLife Auto & Home earned $162 million, up from $54 million the previous year. (Rein noted the figures may overstate the improvement due to excessive weather-related claims in 2001 and an end to integration costs in September 2002.) The group accounted for 9% of MetLife Inc.'s earnings, up from 3% in 2001, and 8% of its revenue.

Those figures, however, do not reflect earnings from brokering the sale of other MetLife products; instead, the group receives some compensation for administrative expenses, while earnings accrue to the affiliate that manufactured the product. But Rein said those product sales will help Auto & Home in the future because property/casualty agents selling more than one MetLife product "tend to become partners with us more than if the brokered just our property and casualty products."

If agents are not licensed to sell other kinds of products, MetLife offers to assign a life agent to each of their offices. Some of these agents may have 5,000 or 6,000 customers, said Michael Davidson, vice president of the independent agents organization. "We have various models," he said. "They don't have to worry about subsidizing them or paying benefits. All they have to do is provide a life agent a desk and a phone."

In an unusual twist, MetLife Bank is planning to offer property/casualty insurance. "Independent agents fought this for years, but I've told them as long as they are appointed, they need never worry about banks getting into property/casualty insurance," said Davidson. "I tell them I'm giving them the opportunity to be a banker, that they can finance cars, write home mortgages or sell certificates of deposit. They love this."

Companies that don't have a full array of products may need to subcontract products and services. Those companies may not be on common technology systems, making communication and administration much more structurally complex. "In addition, our company is well-known and established," she said. "We're not no-name life insurance. There's a lot of strength and value to selling products manufactured by the same company."

MetLife Auto & Home also markets a variety of products through payroll deduction at the work site.