Alaska lenders are leaving the insurance business

Alaska's lenders are leaving or scaling back their involvement in the property and casualty insurance business, selling their brokerages to large Outside firms whose aggressive expansions are backed by private equity.

The trend comes as the state's recession reduces the revenues and payrolls of insurers' commercial clients. No Alaska lender blamed the recession as a reason for leaving the insurance business, though the fortunes of the insurance industry typically follow the trajectory of the economy.

Rather, Alaska's banks and credit unions say, the services that national insurance agencies can provide far exceed their own capabilities and risk can be spread among a much larger group of policyholders.

"More demanding technology expectations are fueling some of this," Alan Dobbins, a director at Hartford, Connecticut-based investment management firm Conning, wrote in an email. "The skill set needed to run an agency is expanding and it is difficult for smaller agencies to keep up with the latest technology."

[Alaska's median income ticked up last year; income inequality went down]

At the same time, large insurance companies based in the Lower 48 are hungry for expansion opportunities. Their solution has been to acquire or merge with smaller firms, setting off industry consolidation in all 50 states, according to Bob Rusbuldt, chief executive of the Independent Insurance Agents and Brokers of America.

The swallowing of small insurance brokers by larger ones, both in Alaska and nationwide, does not affect pricing, said Rusbuldt, who spoke to Alaska Dispatch News from the industry group's offices in Washington, D.C. That's because insurance carriers, not the agencies that sell insurance, determine prices, which in Alaska are subject to state regulation.

Northrim Bank is the latest Alaska lender to shed its insurance business. In August, national insurer Acrisure bought Northrim Benefits Group for $4.6 million. Northrim Bank reported a $2.7 million profit on the sale. NBG offers life, disability, long-term care and other insurance for employee benefits packages.

Acrisure has a much larger risk pool than Northrim and can absorb more claims in a catastrophic event. It also has more insurance services to choose from, according to Joshua Weinstein, president of Risq Consulting, the new name for Northrim's former insurance business. The number of employees will remain about the same under Acrisure, Weinstein said.

"With Acrisure, we can leverage resources that we could not capitalize on here," said Weinstein, who was formerly president of Northrim Benefits Group. "They have an indispensable number of resources we can bring to Alaska and to our clients."

Northrim's decision to sell made sense because the insurance business was a very small percentage of total revenues and the bank reaped a good profit on the sale, Brian Martin, an equity research analyst who tracks the bank's performance, told Alaska Dispatch News.

"It looked like a nice transaction for them," said Martin, who works in Chicago for Atlanta-based Fig Partners. "Of course, in the big picture for Northrim, it's kind of a non-event. You won the scratch-off card and not the Powerball."

Acrisure is on a tear, racking up so many acquisitions that it's ranked one of the fastest-growing business insurers in the nation. Last year, the Michigan-based insurer also acquired Alaska USA's commercial insurance brokerage, which primarily provided property and casualty insurance to businesses, and renamed it Insurance Brokers of Alaska.

Alaska USA spokesman Dan McCue said the credit union made the sale "to better serve the needs of commercial clients." McCue said Acrisure has broader industry experience and access to a greater variety of carriers and services than Alaska USA did.

Private equity firm Genstar acquired Acrisure in 2013 but is now a minority shareholder after a management-led buyout last year.

Wells Fargo led off the recent spate of  insurance business sell-offs by Alaska lenders. In 2014, the national bank sold off 42 small regional consultancies and insurance brokerages, including one in Anchorage, to USI Insurance Services and recently sold the remainder of its insurance business to the same company. No one at Wells Fargo was available to comment, said spokesman David Kennedy.

USI is jointly owned through the private equity partnership of investment firms KKR and CDPQ, based in New York City and Montreal respectively.

A small credit union, Denali Alaskan, also sold its insurance business this year. The buyer was Hub International, a Chicago-based company owned by international private equity firm Hellman and Friedman. Denali Alaskan officials did not want to comment and a Hub International spokesman did not respond to requests for comment.

In the 2000s, banks were entering the insurance brokerage industry in droves following an act of Congress that allowed them to expand into businesses other than banking.

Crossing bank services with insurance sales seemed to make sense. People who needed mortgages would also need home insurance. Anyone taking out an auto loan would need automobile insurance. An entrepreneur getting a small business loan would need several kinds of insurance.

Rusbuldt believes banks have had a hard time reconciling the very different demands of selling insurance and banking. Anecdotally speaking, he said, banks are primarily selling, not acquiring or starting, insurance businesses.

"Insurance agents and brokers are more sales-oriented, while bankers sit back and let customers come to them," said Rusbuldt, whose trade group fought in the 1990s to keep commercial banks out of the insurance brokerage business. "Fifteen years ago, the banks went in and now they are getting out because the cultures are so different."