4 minutes
This is bonus coverage from “A Natural Extension” in the April 2015 issue of Credit Union Management magazine.
Almost every credit union offers some form of insurance coverage for members—from credit life and disability options to a full range of property, casualty, and life insurance products, says Jeffrey Chesky, president/CEO of Insuritas, a CUES Supplier member based in E. Windsor, Conn.
However, Chesky suggests that many credit unions may benefit from examining two aspects of their insurance offerings:
- Organizational commitment to this product line. “Credit union executives get up every day and think intensely about gathering deposits, making loans, and even offering investment services. Many don’t think of insurance products with the same discipline,” he contends.
- Delivery structure. Traditionally, many credit unions have referred their members to third-party insurance providers, which may raise regulatory hurdles in terms of sharing members’ information, dilute brand equity, and make enrollment more cumbersome, he says.
The downside of both these issues is the likelihood of significantly lower revenue production, he cautions.
Under the pro column of offering insurance, Chesky lists “a fairly simple licensing process” and no balance sheet or repayment risks. Plus, “it provides a wonderfully elegant experience for the member because so much of the data the credit union has on the member to underwrite loan risk is exactly the same data that an insurance carrier needs to price claims risk,” he says. Both credit unions and insurance carriers base their underwriting on character and collateral.
Other things that insurance services share in common with credit unions’ bread-and-butter products are that (1) nearly every member buys them from someone and (2) there are lots of someones out there.
“GEICO spends a billion dollars a year in marketing; Nationwide is now going direct to consumers; Allstate is going direct; and State Farm is going direct,” Chesky says. “So credit union executives need to embrace the idea that insurance is going to be a permanent aisle in their store, and they need to think about it with the same energy they think about deposit gathering and loan making.”
Unlike other financial products, though, insurance isn’t a seasonal offering. That means moving away from statement stuffers, in-branch promotions, and hit-or-miss front-line sales efforts. Instead, it means positioning the credit union to make an offer when members are thinking about insurance.
That happens when they’re buying a car or a home, and when their premiums come due. Credit unions will want to have all those entry points covered—through auto loans and mortgages and payment data on insurance premiums.
“Every month, about 8 percent of their membership is getting an insurance bill in the mail, and every time they create a loan, there’s an opportunity for a discussion about insurance,” Chesky says. “Credit unions have some tremendous advantages, but they have got to keep at it.”
Surveys indicate insurance is among the top products consumers prefer to research and compare price online. They may not purchase over the Internet, but they certainly shop around—which leads to an additional “massive advantage” credit unions enjoy with this product line.
Financial institutions “are the only business model in the world that gets millions of free eyeballs to their Web ecosystem every day—their online banking system—so they have to learn how to transition this Web ecosystem and all those free visits into an insurance shopping experience,” Chesky suggests. “Let’s see if we can get members to buy something online so you change your Web presence from a cost center to a revenue generator.”
Credit unions have several options for offering insurance services—starting or buying an agency, partnering with a third party, or some combination thereof. Insurance is regulated at the state level, so some credit unions rely on an insurance partner to deal with the patchwork of varying laws in serving a far-flung membership. However, the Gramm-Leach-Bliley Act has made reciprocal licensing in multiple states much easier, he says.
Startup costs can range from millions to buy or start your own agency to $50,000 to $200,000 when partnering with a third-party provider like Insuritas, Chesky says. In return for that initial investment is revenue from both first-time insurance purchases and annual renewals, which can generate earnings in the 20 to 25 percent range.
“It’s like getting a mortgage origination fee every year on the anniversary of the mortgage closing,” he adds. “It’s not as much money as a mortgage origination fee, but every year it pays. And the average duration of an auto or home policy in a credit union is just over six years, almost twice as long as the average duration of an auto loan.”
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.
