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5. Wells Fargo Insurance Services Inc.


Wells Fargo Insurance Services Inc. expanded its capabilities and revenues over the past year, but questions linger over whether its strategy of cross-selling insurance to bank customers will succeed with large, complex commercial accounts.

Brokerage revenues for the world's fifth-largest brokerage grew to $1.01 billion in 2006, up 5.1% compared with 2005. The broker said that two-thirds of its 2006 growth was organic, with the remainder from acquisitions.

The brokerage's revenues will increase further in 2007 if WFIS' acquisition of ABD Insurance & Financial Services Inc. goes through as planned. Based on 2006 revenues, the purchase of ABD would add $164 million, based on 2006 revenues, to WFIS.

The organic growth rate, which compares favorably with other brokerages, was due to several reasons, said Dave Zuercher, president and chief executive officer of Chicago-based WFIS. Mr. Zuercher became president and CEO of WFIS in August 2006 after serving as chairman of Acordia for five years. He succeeded Peter J. Wissinger, a 20-year Wells Fargo veteran who sought a career change after serving at the helm for just eight months.

Among other things, WFIS changed its compensation structure for managers and lifted certain geographical restrictions, he said.

In the past, local managing directors received credit for sales if their staff placed the coverage, but they did not receive credit if a WFIS broker from another office flew in to make the deal.

Under the changes made, local managing directors receive credit even if a team of producers from another WFIS office steps in to place the coverage because the team has specific expertise that a certain client needs.

Previously, "we would lose sales because they were not able to put the best person in front of the client," Mr. Zuercher said. "They never got any credit for it." Now local managers are more likely to call in experts from other offices when necessary, he said.

Market conditions in 2006 also helped WFIS' revenues. The broker was very active in Florida and other states in the Southeast where property rates shot up following the hurricane losses of 2005, Mr. Zuercher said.

The broker added two offices in 2006, bringing its total to 161. The two new offices provide products for personal lines and "very small" business customers," he said.

It is among small-business customers, observers say, that the brokerage's efforts to cross-sell insurance to bank customers will see the most success. Penetrating larger employers with that strategy could remain challenging, they say.

Cross-selling, however, has been a mantra at WFIS' bank parent, Wells Fargo & Co., for more than a decade, noted Richard Bove, a financial institutions analyst at New York-based Punk Ziegel & Co.

Wells Fargo & Co. decided that growth by selling additional financial products to existing bank clients is more likely to generate additional business than attempting to expand its overall customer base, and over the years it has made several acquisitions to further its strategy.

"They are the best in the business," Mr. Bove said of the parent company's cross-selling success.

But Mr. Bove agrees with others that reaching large clients though a bank cross-selling strategy could take at least a decade to prove successful. Selling complex commercial insurance products to large, diverse employers takes special skill sets that are not normally found at banks, he said.

Cross-selling insurance to large commercial bank clients makes sense on paper, said John Wicher, principal at John Wicher & Associates in San Francisco. But no one has ever succeeded at it and "there remains culturally such a vast difference between the two businesses."

WFIS' Ms. Zuercher agrees it's a tough proposition. But if WFIS succeeds, it would be difficult for competitors to follow.

"That's why we like it, because it's probably one of the hardest things to do," Mr. Zuercher said. "But it's also one of the hardest things to replicate and our company has had a culture of cross-selling that has gone back 15 or 20 years.

"So it's merely inculcating that into the brokerage business, which we have been doing over the last five or six years after our acquisition of Acordia."

Wells Fargo acquired Acordia in 2001 and changed its name to WFIS in February.

According to WFIS, 85% of its overall revenue is from middle-market and larger accounts.

There are 82 different businesses within Wells Fargo, Mr. Zuercher said. The parent company has "specialists" responsible for connecting those diverse businesses to further its cross-sell strategy.

They can, for example, help link customers of a Wells Fargo unit that is one of largest equipment finance entities in the United States with WFIS. Once those customers purchase equipment, they need to insure it, Mr. Zuercher said.

WFIS has also expanded services that might appeal to larger clients with complex risks.

In May 2006, while still under the name of Acordia, for example, the company announced that it established a gaming practice group in Las Vegas "as a national resource for Wells Fargo and Acordia customers and sales professionals."

The group was launched to provide risk management and insurance purchasing services for casinos, riverboats, Indian gaming and "racinos"--a combination of race tracks and casinos.

This year's purchase of Redwood City, Calif.-based ABD, which will operate as a separate unit, should help WFIS expand its risk management practice, said Mr. Zuercher.

"I think it will improve our risk management capabilities, especially on the West Coast where they have a very strong risk management culture and we tend to be more of a local broker on the West Coast," Mr. Zuercher said.

Like several other brokers that place business for midsize and small businesses, WFIS continues to accept payments from insurers. The brokerage reports that contingent or supplemental commissions accounted for 2% of its revenues.

Although, WFIS has not yet had to settle with government regulators over its acceptance of contingent commissions in the same way that its larger rivals have, the brokerage was sued in 2005 by West Virginia Attorney General Darrell V. McGraw Jr., who alleged that Acordia violated state antitrust and consumer protection laws by accepting contingent commissions for sending business to insurers. Mr. Zuercher refused to comment on the status of the suit. Officials in West Virginia say the case is still in the discovery stage and they don't expect a trial before next year.

On July 6, Wells Fargo & Co.'s stock closed at $35.33 a share, with a 52-week high of $36.99 and a $52-week low of $33.01.