3 Reasons Not To Buy Business Insurance From A Bank

If you're like many business owners, you use banks to manage your money, take out business loans or even finance the mortgage on your company-owned property. But what about buying your business insurance from a bank? Is that such a smart idea?

On the surface, buying insurance from a bank is harmless. After all, insurance is seen by most as a commodity. If you can get it from any GA insurance agent, and practically every policy is the same, why not buy it from a bank? You already do business with them anyway.

Reason 1: Your Bank Agent May Go Missing After The First Year

One of the first things banks do when they buy an independent agency is cut their insurance producer's renewal commission, quite often in half. So, producers are left with less incentive to care about calling their clients at renewal time. Heck, if I knew I were getting paid significantly less to service my clients after the first year, I'd probably spend more time that second year bringing in higher-commission new business, too.

I've seen this happen to more than one GA insurance agent. A client moves their insurance to a bank. Then a year or two later, they call us back saying they just weren't getting any service from their other agent. Often, they can't even remember their agent's name by that point! Personally, we love it when this happens.

Reason 2: Your Business Might Not Be Worth It To A Bank

Since most banks view clients as commodities (Face the ugly truth, they do.), another change they institute pretty quickly after buying an independent insurance agency is setting minimum premium thresholds for their producers.

This means, if your business doesn't generate enough premium to meet their new minimum, they won't write your insurance. You could have the cleanest claims record in history and a cheerful disposition to boot, but it doesn't matter. Your policies are too small to get them paid.

So what's the minimum premium, you ask? In Georgia, we've seen anywhere from $25,000 to $50,000 on average. That means, many contractors, retail shops and accounting firms that independent agencies are eager to help wouldn't even qualify to have their insurance written by a bank. Are you getting the warm fuzzies yet?

Reason 3: Illegal Coercion

In Georgia, as well as many other states, it is illegal for banks to coerce clients into doing other business with them. For example, let's say you apply for a small business loan with a bank and also ask about purchasing insurance from them. While you're waiting for loan approval, the bank's insurance agent gives you a quote for your company's insurance. You baulk at the price and say, thanks but no thanks. Then the loan officer says, "Well, we were going to approve you for this loan, but since you won't buy insurance from us, I'm not sure we can make this happen."

That's coercion, and it's illegal! And yet, nearly every independent GA insurance agent has lost business to a bank because their prospective clients need a loan, and can't say no to the loan officer. Not a great situation for either party.

Conclusion

Over the past decade or so, banks have been slowly buying up independent insurance agencies and fundamentally changing the way they operate. Some agencies were struggling, some owners had no perpetuation plan and some just wanted to cash out. No harm in that.

The difference is, most banks operate completely contrary to the independent insurance agency model. When clients are treated as a commodity instead of a valuable relationship, no one wins. So I say, let your bank be your bank. And let your independent GA insurance agent be your trusted advisor.