How 1 CU Cut Competition, Grew Business With CUSO

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TruStar Federal Credit Union is a Top 100 CU in two categories: capital and lending. TruStar's capital ratio is more than 22% and its loan-to-share ratio is more than 100% as of September 2004. Dale Johnson, the CEO of TruStar FCU shared some of his strategies for creating a better bottom line. In part two, we'll look at the credit union's success in lending.

Three years ago, International Falls, Minn.-based TruStar FCU started a CUSO with an insurance agency that was independent and offered more than 17 different insurance carriers to members.

The mix is 60% consumer and 40% commercial insurance sales.

The insurance CUSO is set up as a limited liability company, so the parent company (the credit union) pays taxes on the earnings at the parent's tax rate. Therefore the credit union pays no taxes on the insurance agency's earnings.

TruStar bought the agency for $460,000 and the net income this year was $250,000 from the agency. The agency basically paid for itself in less than three years. With the success of this agency, Mr. Johnson is looking to purchase another agency for a branch about 160 miles away from the main office, with a goal of attracting consumers who may not know much about the credit union. The current insurance agency has helped contribute almost half of the net income of the credit union during the past year. The selling price will be about $600,000, about a 30% return. The business plan is to have the new agency paid for in a matter of three years.

Incentive plans can be a sticky issue in the insurance CUSO, with Mr. Johnson observing, "Greed is one of the seven deadly sins." If greed sneaks into the equation, you may not have a team. The incentives and goals have to support each other. "There was a little bit of a learning curve on this one," said Johnson. "At first they paid more on individual performance, but now the plan is more focused on team incentives. Those team incentives have helped increase the team spirit and have helped the credit union boost the overall sales of the agency. Teamwork is the key to long-term success in a CUSO insurance agency. Your people make all the difference."

The manager of the insurance CUSO is on salary plus incentive with a focus to control expenses. The incentive plan is set up to pay higher incentives for a healthier book of insurance business. The better the loss ratios for the insurance companies, the better incentives paid back to the insurance agency from the insurance companies. Johnson says the incentives paid back can be substantial.

Johnson noted that the referral business going back and forth between the agency and the credit union is a natural tie. The agency has grown its book of business about 45% since the credit union acquired it about three years ago. The CU has created an incentive plan for the loan officers and the insurance agents to refer business back and forth between agency and the credit union. The lenders get and give leads on insurance and vice versa. It is never high pressure, but it is an offer to help members save money on their loans, or on their insurance. Insurance quotes are available on the website.

Johnson recommends that before you purchase an insurance agency make sure you get a good valuation, such as through a service such as Marsh-Berry, which does independent insurance agency evaluations. Your CPA auditors and the NCUA will want to know the value of the agency as well and remaining in their good graces is valuable. By having an insurance consultant look at the agency can also put you in a better negotiating position. If you know the value, then you know what price to aim hard at when you are talking to the principles.

Johnson said he has not really seen any real downside to the acquisition of the insurance agency. However, the most important thing is to evaluate the personnel that will come with the purchase. Remember buying an insurance agency is buying blue sky; there is no tangible asset that goes along with the purchase. It is a purchase based on the people who come along. Get them locked in with a non-compete clause so that you can protect your investment.

By owning an agency, you can also reduce one competitor in your community, as many agents have the potential to offer loans to the customers. For instance, from our research of banks at we have found that the State Farm banks around the country are very similar to credit unions, with the majority of their loans in car and second mortgages. And they get many of their leads from the insurance agents they have a relationship with through State Farm.

TruStar has investment services offered through the insurance agency. "Not that it brings in a lot of investment business, but with the high-end members it gives them a chance to look at what we have to offer," said Johnson, who passed along this piece of advice from his father: "The more hooks you put in a fish, the less likely they are to swim away."

This article originally appeared at, and was authored by consultant Rory Rowland. For more information, visit the website or call 816-478-3249.

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