GATEWAY INSURANCE RIDES A COASTAL SURGE

Feature Article - Summer 2008 | By Andrew Singer

GATEWAY INSURANCE SERVICES, a subsidiary of Gateway Bank & Trust (Virginia Beach, VA), specializes in coverages for coastal residential properties in places like North Carolina's Outer Banks.

Such coverage does not come cheap. The Outer Banks are subject to hurricanes and other catastrophic weather events. Property owners often purchase flood, wind, and hail insurance in addition to homeowners insurance. Annual premiums often run between $5,000 and $10,000.

Thus, unlike most of the rest of the country that has been mired for some time in a "soft" market marked by lower insurance premiums, Gateway Insurance Services has benefited from a "hard" market with its higher premiums. (A 'hard' market is generally good for insurance agencies but bad for its customers; a 'soft' market is just the reverse.)

The agency, with 10 insurance offices in North Carolina and Virginia, plus a service center in the Outer Banks, has been one of the nation's fastest growing bank-owned insurance businesses. Insurance brokerage revenues advanced 82 percent in 2007—to $5.3 million, according to the Bank Insurance Market Research Group. Even though much of that gain was from two agency acquisitions in 2006, organic growth has been solid, too, in the first half of 2008, according to Brian Hellenga, President and CEO of Gateway Insurance Services, Inc. (Chesapeake, VA).

'The ballast in the ship'

Hellenga calls the agency's coastal residential business "the ballast in the ship." Gateway doesn't conduct a lot of middle commercial market business unlike some other bank-owned insurance agencies. At present, personal lines account for about 65 percent of revenues, commercial lines 35 percent.

Gateway Bank & Trust, a $2 billion (assets) bank formed in 1998, is a subsidiary of Gateway Financial Holdings. Insurance has been part of the bank virtually from its beginnings. David R. Twiddy, the bank's president and COO, is a former insurance agency owner.

Indeed, Gateway Bank acquired Dowd & Twiddy Insurance—Twiddy's agency—in January 2000, and another agency, Fidelity Insurance, in January 2001, not long after the bank's formation. These agencies were combined to form Gateway Insurance Services, Inc.

David Twiddy still holds his property/casualty (P/C) insurance license, notes Hellenga, and takes continuing education courses to maintain it. Insurance has always been part of Gateway Bank's philosophy, adds Hellenga, who was approached two-and-a-half years ago by Twiddy and asked to head Gateway's insurance operation, in particular to help build up its business in Virginia (beyond the agency's North Carolina roots). Earlier, Hellenga spent 20 years on the "company side" of the insurance business, working at carriers like Great American and Ohio Casualty Group.

Two of the insurance agency's offices are stand-alone offices. The rest are "embedded" in bank branch buildings—often with three or four insurance people per branch. The agents are not located in the bank lobby, but they have offices within the bank building, off the hallway, for example. Gateway Insurance has 43 employees overall.

Bank president Twiddy believes in a team approach toward business, says Hellenga, including cooperation between bankers and insurance professionals. "We're part of the team." Hellenga's group provides the branches with popcorn machines that are emblazoned with the Gateway Insurance logo. "We crank up the machines on Friday" when branch volume is high, he says. It makes for good bank-insurance relationships.

The agency, with offices in North Carolina and Virginia, plus a service center in the Outer Banks, has been one of the nation's fastest growing bank-owned businesses.

In his earlier career, Hellenga often called on bank-owned insurance agencies. He often saw little "teamwork" between the bank and insurance sides, particularly at the larger bank agencies. Those businesses tended to run virtually autonomously.

That is not the case at Gateway. "The bank is our customer," he says. Twenty percent of new business comes from bank referrals, much of it personal lines and small commercial business. Hellenga admits that some of those referrals are of a size that a large bank insurance agency wouldn't accept. Those agencies might reject any lead that failed to generate at least $5,000 in annual revenues.

At Gateway, however, the philosophy is service first, revenues second. It is better to help out the client, even if the fees generated are not enormous.

Assisting bankers

In their efforts to assist bankers, the agency and its professionals have sought to become flood insurance experts, says Hellenga. Flood insurance, which is often mandatory in coastal areas, can throw a monkey wrench into a pending home sale. Gateway's insurance agents help sort things out, explaining to bankers what a flood zone is, how to read an elevation certificate, where flood insurance is mandated, where it isn't. Above all, the bankers are told "to contact us" if they have a problem understanding coverage, says Hellenga.

While the rest of the country has been mired in a 'soft" insurance market—marked by lower insurance premiums—Gateway Insurance Services has benefited from a "hard" market.

"They call us as a resource," he says of the bankers, but then almost inevitably Gateway Insurance is able to write the insurance. In 2005, the Federal Emergency Management Agency (FEMA) named Gateway Insurance Services its "Agency of the Year" in recognition of its expertise in the National Flood Insurance Program.

The agency also looks to the commercial middle market for business, says Hellenga, but he admits that "it is not our forte." If the bank and agency were based in Nashville, for example, it wouldn't make much sense to focus on the residential market. Annual premiums there might be only $600. But here they are often doing 1) flood insurance, 2) wind and hail coverage, and 3) homeowners insurance. Annual premiums are often $6,000 to $10,000 per residence. It's almost like a small commercial lines business.

The agency tries to stay flexible with the kind of business that it writes. Among the 'unique' accounts that the agency has written:

• The oldest frame dwelling in North Carolina
• A jet ski rental operation in the Outer Banks
• A bed and breakfast inn on Ocracoke Island
• A railroad in California

Hellenga is projecting 6 percent organic growth in 2008. While that may seem low, many bank insurance operations are anticipating negative growth for the year given market conditions.

More acquisitions appear to be on the horizon. The agency's stated goal is to follow the bank's footprint. That means agency acquisitions in Richmond, VA, and Raleigh, NC, could soon follow. The institution's business model calls for its insurance and banking units to work hand in hand in their various markets, he notes.

Other insurance goals include (possibly) placing insurance offices in the bank's Greenville and Wilmington (North Carolina) bank branches as well as establishing a life and health insurance division.

Hellenga observes that working for a bank often endows one with "instant credibility" with prospects. Gateway Bank has "positive brand recognition" in many areas in which it operates. "When I say that I'm from Gateway, it opens the gate more widely than if I was from the Acme Insurance Agency," he says.

Every business is built on relationships—at least to some extent—but Hellenga is struck by the strong client relationships that bankers have formed.

What is the key to a successful bank insurance operation? Building the trust of bankers looms large. "We are a bank first." When Hellenga attends bank management meetings, "I am there to assist them."

Those meetings have opened the door with a lot of bankers. The growing familiarity helps assure bankers that the insurance agents aren't going to disrupt their customer relationships.

It's important, too, to have a person at the top—a senior executive—"who understands how an insurance agency works," how it can add noninterest income to the parent business and how it can bind relationships.

Twenty percent of new business comes from bank referrals, much of it personal lines and small commercial business,

Today, "fee income is king," notes Hellenga. Making money from bank loans is getting harder. Gateway Bank was happy a few years back to let its insurance agency do its own fee-income thing. "Now they want more from us," he says.

Andrew Singer is editor-in-chief and publisher of Bank Insurance & Securities Marketing magazine. He can be reached at asinger@bisanet.org