10 minutes
A line of services that complements your existing offerings? Check. That most all members need? Indeed. That provides a source of revenue not subject to interest rate risk? Roger that.
Home, auto, and other insurance products are a natural extension of many financial services that credit unions already deliver—and they offer a reliable source of non-interest income that doesn’t involve punitive fees, suggests CUES member Mike Mastro, president/CEO of $955 million/31,000-member Firefighters First Credit Union, Los Angeles.
And, as the examples of Firefighters First CU and other credit unions shared here show, several options are available for adding insurance to your product lineup.
Firefighters First CU formed its own insurance company in a 51/49 percent partnership with an existing company, Crusberg Decker Insurance Services, led by a retired Pasadena fire battalion chief. Firefighter Insurance Services LLC offers auto, home, life, earthquake, and business lines of insurance, along with a group disability program offered to firefighter unions in California.
The credit union’s decision to form an in-house agency was based, in part, on the opportunity to work with an industry insider from within its field of membership and to optimize financial return while “delivering a new high-value product with integrity,” Mastro says.
“With an insurance agency, you not only receive the commission income, but when you own the agency, there is a growing and potentially significant market value to that book of business as policies grow. Typically, you don’t account for that on your books, but that value can be used to sell the agency or borrow against its value in the future.”
Insurance sales currently account for less than 5 percent of Firefighters First CU’s net income, but Mastro sees the potential to quadruple that revenue stream.
“It is growing over time, and we have very robust expectations for this product line,” he says. “We hope to drive it to 20 percent of net income over the next few years.”
After gaining a few years’ experience in the insurance business, FIS has branched out to partner with other credit unions, primarily in southern California, that want to introduce insurance products, either through a referral model or ownership model. Thus far, it has created agencies for four other credit unions, in which it generally maintains a minority interest. “I like the idea of credit unions partnering together for mutual uplift,” Mastro says.
Firefighters First CU’s well-defined field of membership and emphasis on the benefits of member-ownership—the credit union distributes an annual membership dividend in the form of loan interest refunds and extraordinary dividend rewards—may provide an advantage in promoting insurance services, he notes.
“Our message is, ‘The more business we do together as a fire family, the greater the return will be for all members,’ and we have a high level of trust with our members,” he says. “There’s a natural inclination among firefighters to do business together, but it’s not a slam dunk. At the end of the day, your members are your best referral.”
More Options for More Members
Philadelphia is “a tough place to write insurance,” says Mark Craven, managing director of PFCU Insurance Services LLC, the insurance company that serves members of Philadelphia Federal Credit Union. Home insurers look askance at the flat roofs and common walls of row houses, and auto insurance can be hard for some Philly drivers to obtain as well. To comply with auto loan and mortgage requirements for insurance, some members would go shopping for insurance and come back empty-handed.
Executives at $980 million, 110,000-member Philadelphia FCU decided offering insurance in house through a multi-carrier platform would “give us the best chance to write the most insurance for the most members,” Craven says. In 2002, the credit union partnered with Insuritas, a CUES Supplier member based in E. Windsor, Conn., to launch the new product line.
“The idea was to make it easier all around: one-stop shopping for members, streamlined loan closing, and a way to start a stream of non-interest income,” he says. “Plus, at the time we were seeing insurance companies creating banks to cross-sell loan products to their customers.”
PFCU Insurance Services achieved its projected breakeven point at three and a half years, even with adjustments across the insurance industry in the wake of the 9/11 terrorist attacks. Income has been growing steadily, almost like an annuity with renewals providing a steady source of revenue, Craven reports. “Every year we’re building new business and retaining 90 percent of the policies from previous years.”
Philadelphia FCU has come to recognize that writing insurance is like making loans: Not everyone qualifies. “Insurance carriers have to have an appetite for insuring properties—and there’s nothing we can do about that,” Craven notes.
The financial impact of offering insurance extends to more efficient loan processing and quicker turnaround time on loan documentation because there are fewer delays in waiting for proof of insurance, he adds. Over the years, the credit union has also improved communication channels between its loan department and insurance partner on potential prospects.
The PFCU Insurance Services website accounts for about 65 percent of member enrollments in insurance offerings.
“They’re comfortable in the initial phases shopping and comparing rates online,” Craven says. “When it gets down to decision time, they want guidance about adequate coverage, so they call into the Insuritas line, which answers as PFCU Insurance Services.”
In marketing insurance, Philadelphia FCU relies on newsletter articles, online banners, leaflets at its branches, and other means to remind members about the product line. “Insurance is something we constantly have to work into the matrix along with every other product we have out there,” Craven adds.
Long-Time Provider
GTE Financial Credit Union, Tampa, Fla., is a veteran in the insurance business, forming a credit union service organization, Credit Union Insurance Services, in the early 1980s and purchasing a book of Safeco business. A focus on the role of insurance services has ebbed and flowed over the years, says CUES member Chip Coberly, VP/insurance and investment services for the $1.65 billion credit union with 229,000 members.
Currently, “we’re very strongly promoting it with our members and trying to integrate insurance lines with mortgages and auto loans,” Coberly says. GTE Financial CU’s insurance affiliate, Credit Union Insurance Services, LLC, primarily offers property and casualty policies to members, along with some life and health insurance.
The insurance CUSO has about 5,000 active policies, producing annual net income of more than $300,000. It employs five full-time agents, two customer support staff, and the company principal, who is also a licensed agent.
The primary advantage of offering insurance services is providing a new member service that fits well with other credit union products, Coberly says. “And these are sticky products. Consumers typically don’t change policies often. Once you get them, you’ve got them for a while.”
Challenges include maintaining adequate business with multiple carriers and managing the policies in compliance with their standards.
“There’s a lot of work to managing your book,” he adds. “You can end up not making money or losing money” by not maintaining enough business to cover expenses.
“Our primary focus is on making sure the members have the best coverage for their needs,” Coberly continues. “We really do approach this as a member service, not primarily as a revenue generator.”
GTE Financial CU applies the same philosophy to its investment services, offered through a dual representative model with Investment Centers of America. In a dual representative model, the investment advisors are employees of the credit union but licensed through the business partner.
The credit union has offered wealth management services for about 15 years and currently serves about 2,000 members with $162 million in assets under management.
Offering investment services “really fits in more with our focus on financial education for members,” Coberly says. “Fewer people have any kind of defined benefit or retirement plan, so the responsibility of preparing for retirement falls to individuals.
“As a smaller organization, we can offer a personalized level of service with the same level of expertise as other investment firms,” he adds, “but we’re right here at the credit union so there’s a level of comfort.”
The Business of Business Insurance
Denali Alaskan Federal Credit Union enjoys a 10 to 15 percent boost in income each year from its wholly owned subsidiary, Denali Alaskan Insurance LLC, but most of that revenue comes not from members but from businesses that make up the lion’s share of the insurance company’s clientele.
$572 million, 61,300-member Denali Alaskan FCU bought the agency in 2002; one of the owners retired at that time and the other stayed on until 2007, says Mike Gordon, who joined DAI as president in 2009.
About 90 percent of DAI’s business is in commercial insurance, serving construction and aviation businesses, even a large hospital. “We’re also consultants to these companies, talking to them and their accountants and attorneys about their risk tolerances, what risks they’re facing and how to avoid them,” Gordon says. “We have to wear many hats, so we’re pretty diverse in terms of what we handle commercially.”
On the other hand, DAI’s consumer insurance products had never flourished, so the company turned its personal lines over to Insuritas in 2012, “and they’ve been growing that business through their call center,” Gordon says. When DAI was evaluating that option, Gordon visited Insuritas and “sat in with their staff at the call center so I could listen in as they talked with members to see how they sold the credit union brand.”
Figuring out how best to refer Denali Alaskan FCU members for insurance services has been a challenge, but through trial and error, DAI is making progress. The credit union originally trained its front-line staff for referrals, so the insurance staff could follow up with members. “In the best month for referrals, we got 150—and wrote one policy,” Gordon says.
Then Gordon had cards printed with information about DAI, so credit union staff could hand them out to members who mentioned insurance or financial products related to insurance. Encouraging members to take the first step by calling or visiting the website has been much more successful, he notes. About 75 percent of members who take that step end up applying for homeowners, rental, or auto insurance, and DAI writes policies for 57 percent of those members.
In short, “the quality of referrals is much higher when members proactively make the call or visit the website,” he says.
Work in Progress
Integrating insurance services into the core product line and improving delivery across channels is an ongoing process at these credit unions. For example, in a unique twist, DAI may soon be forging new connections with its parent credit union, referring its business insurance clients as Denali Alaskan FCU introduces business services.
At Firefighters First CU, Mastro says the credit union has more work to do in improving its online interface for insurance sales. For now, front-line staff, well trained in conveying the value proposition of obtaining insurance through the credit union, remain the foremost source of referrals.
In addition to insurance, Firefighters First CU also offers investment services in house through a partnership with CUSO Financial Services, San Diego, and is now approaching $200 million in assets under management. And the holding company that manages its insurance agency is also charged with investigating other potential forms of income.
“We’re all concerned about how technology and new forms of competition may take fee income away. When traditional income streams are challenged, we need to look to new forms of income,” Mastro adds. “Our approach is to be a little entrepreneurial, with a generally conservative, yet appropriately progressive, mindset to execute on new opportunities.”
Beyond revenue production, offering insurance and investment services enhances member loyalty and expands wallet share, Coberly says. “There are some ethically challenged entities out there in both spheres, so the credit union provides a trustworthy source where members can get the guidance and services they need. And if you manage it well, you can make some money at it, too.”
Karen Bankston is a long-time contributor to Credit Union Management and writes about credit unions, membership growth, marketing, operations and technology. She is the proprietor of Precision Prose, Stoughton, Wis.
