MADISON, Wis. — Credit unions seeking revenue boosters during the ongoing margin squeeze need look no further than a reliable standby many have had for years but may not have paid much attention to: insurance offerings.
"There is no question that financial services firms, both credit unions and banks, are feeling a margin squeeze," said CUNA Mutual VP of Executive Products Bill Jolicoeur. "I feel a lot of credit unions looking to others for help, we have a lot more looking to others for help. Credit unions are looking to be better at sales. They realize the benefit of cross selling. In general they have been focusing on employee skills in order to sell."
CU and insurance experts told Credit Union Journal that credit unions are placing more emphasis on decades-old insurance products such as credit insurance and disability while simultaneously looking to collateral protection insurance (CPI) and debt cancellation agreements to help both members and the CU revenue stream.
But building revenue and keeping members happy can be a tricky balancing act. Jolicoeur said the No. 1 priority has to be keeping the member relationship intact and then boosting credit union income. Even with the upheaval at Centrix and the world of indirect auto lending, Jolicoeur said he sees CUs spending more time with indirect lending clients to expand any existing relationship.
"We're seeing more credit unions treat them as borrowers and mining their data," he said.
City of Memphis Credit Union CEO Ken Swann echoed Jolicoeur's comments on member focus.
"Insurance products are a value to both the member and the credit union. It protects both," Swann said. "We do make money off it, but that's not the main focus. Our main focus is to serve our members."
Swann said City of Memphis had sold credit, life and disability for decades and CU leaders felt strongly that it was a needed value for all of the membership at the $188-million credit union. As credit insurance has been around so long, Swan said it has a bit of a staid, dusty aura about, and decided to reeducate his staff, loan officers and board of directors on its positive aspects.
Swann brought in Creditor Resources, Inc. (CRI) to teach two, one-day sessions on credit, life and disability insurance products. CUs can protect their loans, and their revenue streams, in case a member loses a job or is felled by sickness and both parties can win, he said. After the October 2006 training classes, Swann said sales of credit, life and disability insurance increased more than 50% from existing levels and gave sole credit to the CRI classes.
"Then 'boom,' everything took off. The staff is positive and the members have really taken hold of it," he said.
Swann said CUs taking a second look at credit, life and disability insurance need to spend the cash on training, get "the board on board" but always keep the members in mind.
"The third and final thing is income, but that can't be your focus," Swann said. "From a cost standpoint, it's not overly expensive."
City of Memphis CU uses credit, life and disability insurance as a way to safeguard members' health and welfare, which in turn can minimize the need for collateral insurance protection, State National Companies EVP John Pearson said CPI can be used effectively to help offset the losses that all credit unions suffer each year.
Pearson said he's seen a "big uptick" in the number of credit unions seeking information about CPI. CUs both large and small that have never contacted CRI about CPI are doing so lately as losses mount. Pearson CPI still carries a stigma from industry troubles in the late 1980s and early 1990s, but said there hasn't been a CPI-related lawsuit in 15 years. Pearson said margins are "always squeezed" and it's not wise for any CU to not consider the value of CPI to both member and credit union especially when staff sees the potential savings.
"In many cases, it's about 30% of charge offs. Not much else can affect this much," Pearson said.
While most types of credit insurance have been around for a long time the relative "new kid on the block" is debt cancellation, according to CRI Product Manager of Financial Institutions Bill Elliott.
Debt cancellation programs waive, versus postpone, payments when a member is injured, loses a job or can be tied to certain life cycles, such a child's birth or several children leaving for college all at once. Elliott said a debt-cancellation program is not an insurance product, but an agreement between the credit union and the member to waive certain payments during certain circumstances.
Elliott said CUs like debt cancellation agreements as they're not controlled by a state regulator, which allows flexibility in language, terms and what will be cancelled. For example, Elliott said a $300 per month truck payment cancelled for three months due to injury would usually cost a CU $900.
CRI would reimburse the credit union the cash thereby maintaining the revenue stream, satisfying the original agreement and retaining a member who's going through a life-changing situation.
(c) 2007
