The Great Recession forced credit unions to look at new sources of income to compensate for lower loan volume and higher losses, says David Foster, vice president of asset accumulation sales at CUNA Brokerage Services Inc., the broker/dealer offering of CUNA Mutual Group.
Fortunately, “fees” isn’t necessarily a four-letter word with consumers when they’re associated with member-friendly services such as investments and insurance, Foster says. These offerings can provide substantial fee income without being punitive.
He cites a 2012 Filene Research Institute report that says 86% of members believe credit union investment and insurance programs are important and beneficial offerings.
Jeffrey Chesky, president/CEO of Insuritas, agrees. “Strategically, credit unions have to reduce their reliance on net interest income and start looking at fee income as vital to their futures. Insurance is something 100% of their members buy every year—no other product comes close to that figure.
“As a result,” he continues, “when I talk to a credit union president, I say, ‘It’s not a matter of if you’re going to own a turnkey insurance agency, but when. And if you don’t see that, your successor will.’ ”
Chesky says reluctance to sell insurance may be based on negative perceptions of fee income. “Most fee income is associated with dunning for overdraft s or returned checks—what I call ‘pain-point fees.’ Insurance is different. It’s a necessary product that provides a service to members and reinforces their positive perceptions of the credit union.”
He sees less resistance to selling insurance products now than five or six years ago when the excuse was a credit union’s lack of experience or familiarity with selling them. But now there’s the risk of competitive incursion on core credit union products.
Some national insurance companies now promote banking services in addition to auto, home, and life insurance products. “Shame on credit unions that sell members auto loans and then send them to State Farm for the insurance,” Chesky says. “Often, State Farm will cross-sell a certificate of deposit [CD] or other financial product to that member, who eventually stops doing business with the credit union.”
Chesky cites three forces that are creating “a unique and enormous opportunity” for credit unions in the insurance field:
1. A declining independent insurance agency system. “Just like the local hardware store or drug store, they [independent agents] are becoming obsolete,” he says. “People under age 50 increasingly see insurance as a commodity, and independent agents simply aren’t needed.”
2. Less trust in independent agents. “Ads like GEICO’s reinforce the notion that ‘you’ve paid too much,’ ” Chesky says.
3. Lack of transparency. Chesky criticizes some national insurance companies for supposedly showing comparative prices among competitive carriers. “But when you call to get a price, they tell you that you have to call all of the other carriers to find their real prices.”
If insurance companies can move into financial services, why shouldn’t credit unions enter the insurance market? Doing so creates excellent cross-sell opportunities, says Frank Castellano, vice president, insurance partners, at SWBC.
“Insurance isn’t a traditional core product,” he says. “But for credit unions to compete long-term, offering it is almost a necessity.”
Setting up insurance product sales isn’t difficult. “Our approach is to build a traditional agency from scratch, where the credit union represents multiple carriers and offers a wide array of insurance products— life, term, property, auto, credit,” says Castellano.
Commission fees for insurance policy sales can reach 15%, comparing favorably to today’s low loan returns.
Another opportunity is GAP (guaranteed asset protection) insurance as an add-on to auto loans, says Cory Jefferies, SWBC’s vice president of financial institution operations.
“A real missed opportunity is extended warranties, which the industry knows as ‘vehicle service contracts,’ ” he says. “Credit unions do a big used-car business, and many of those cars have ceased being covered by standard industry warranties. Offering coverage is one way to build profits and increase member retention.”
The key for credit unions is offering members reliable, no-hassle coverage. “The warranty coverage we offer is via an A-rated, nationwide carrier that offers private party-sale transferability,” Jefferies explains. “The coverage is easy to set up and is much more automated than it was only a few years ago. The sales proposition is persuasive: This product is used 85% of the time, and credit unions can offer it at one-third the cost of what dealers charge.”
Insurance carriers and credit unions share some commonalities— namely, they both underwrite risk, Chesky says.
“Basically, they underwrite a member’s character and collateral,” he says. “What’s interesting is that 98% of the information a credit union collects for auto loans is the same information required for auto insurance quotes. In fact, insurance carriers believe the best indicator of risk is a person’s credit score—even more so than a driving record.”
Selling insurance doesn’t require onsite agents. “We originally started with agents onsite—something credit unions could promote,” says Castellano. “But as insurance became commoditized and communications technology improved, more than one-third of households now conduct business online.”
Despite the relatively easy setup, Castellano cautions “you don’t become millionaires overnight selling insurance. Building an agency is a marathon, not a sprint. Your goal is to create a retention rate of 90%, and it takes three to five years to get your agency built and running.”
Plus, he says, successful credit union insurance sellers have champions on staff, have made insurance a core product, and promote it heavily. “We have a motto about how credit unions should promote insurance: ‘You don’t have to sell, just tell.’ ”
Tailor investment offerings
Foster says that while insurance is fairly straightforward, “the investment side can be more problematic because of the need for a cultural fit between a credit union and the investment adviser it brings on board.”
He says this person must understand the credit union’s cooperative, service-oriented nature versus the more aggressive, sales-driven stereotype many associate with Wall Street or large investment firms.
“We spend an awful lot of time trying to find the right advisers for credit union clients,” Foster says. “We use an employment assessment tool with prospective candidates to identify key behavioral traits—such as energy level, assertiveness, sociability, independence, manageability, accommodation, and so on—to find the proper balance.”
Beyond the proper temperament, Foster says advisers must be able to form accurate assessments of members’ needs: What’s a member’s level of investment experience? What does the person currently own? Is the member’s portfolio conservative— with CDs and bonds—or does it take on more risk?
Perhaps the biggest hurdle to more robust credit union investment service sales is the failure to properly market them. Foster cites a Raddon Financial Group finding that only 29% of members are aware their credit unions offer investment programs, and only 2.9% actually use the services.
“There’s oft en a big disconnect when it comes to credit unions letting their members know about investment services,” he says. “Bank investment programs have a penetration rate of 5% to 7%. This shows that with the proper awareness and targeted marketing, credit unions have room to grow.”
Insurance providers say a typical insurance services program takes about 90 days to set up. That includes acquiring licenses, setting up an origination system, and training staff. “We create an agency, answer the phone, issue the policies, do the billing, and settle the claims—all in the credit union’s name,” says Chesky. “Nobody ever sees us or knows we are there.”
Vendors provide technology that gives credit unions impressive heft . “We use rating-engine technology, where we collect relevant member information and present it instantly to several carriers,” says Chesky. “We give carriers three minutes to respond—a tactic that forces them to make a best offer based on the data given them.”
Vendors leverage buying power by going to a large stable of providers, versus independent agents who may represent only a couple of carriers. “Credit union members coming through branded sites see every possible provider and price,” Chesky explains. “As insurance distributors, credit unions are unique because they have brand equity, a built-in advantage as a trusted source versus online insurance sources.”
For investment services, CUNA Brokerage Services offers “campaigns in a box,” including statement stuffers, plasma screen content, lobby posters, and Web content, Foster says.
“Our ‘Members in Scope’ database has the names of more than 55 million credit union members,” he says. “With additional algorithms, we can come up with the names of members who have the highest propensity to use investment services. Say a credit union has 100,000 members, 3,000 of whom currently are using investment services. We might come up with 7,000 additional members to target with seminars and workshops.”
►CUNA Brokerage Services Inc.
►CUNA Mutual Group
►Members Trust Co.