Editor's note: this is the first in a two-part series on four different insurance distribution models.
Year after year, the ongoing consideration of noninterest income generation has become a fact of life for virtually every type of financial institution. With factors like low interest rates, increased marketplace competition and the growing expectations of tech-savvy populations, finding ways to squeeze additional drops of revenue for your credit union is the de facto standard.
Insurance distribution is a natural fit, and indeed, insurance products can offer some attractive benefits to credit unions:
- Expansion of product offerings and member services to build on the notion of being a complete financial resource.
- Diversification of revenue.
- The opportunity to protect loan assets (like cars, houses, even personal lines of credit) with an appropriate product offered at the precise time a member needs it.
Expanding Wallet Share
Further, appropriate insurance products also expand the general wallet share per member, increase overall market share and make members stickier in terms of their credit union loyalty.
So how might a credit union begin to implement insurance distribution within its business model?What types of structures could work? Where are the greatest opportunities? Which models would be riskiest?
To help answer these questions and others like them, we commissioned a report by MarshBerry, a leading national consultancy with a strong reputation among insurers, banks, credit unions, investment brokers and other financial service providers.
Getting started in insurance distribution essentially boils down to one of four business models: Build an agency from scratch, acquire an existing business, create a joint venture or outsource. We began with these models as the basis for evaluation.
As we reviewed the research, considered up-to-the-minute consumer trends, looked at case studies and evaluated real-life examples of what to do (and, in some cases, what not to do), we began to see a more-complete picture of the pros and cons of each business model. Here's what we found.
Option 1: Building an in-house insurance agency from the ground up. The complexities of insurance distribution — regulatory issues which vary by state, licensing requirements, capital investment, risk management, leadership, operational learning and other factors — are perhaps most magnified in this model. While a build-from-scratch approach does provide total control over process and outcomes and can even offer an incremental approach to growth without any concern for conflicts of interest, achieving that first sale of an insurance product is incredibly expensive. Further, the time period from initialization to break-even to positive ROI can be significant — in some cases, well over a decade. And due to regulatory limitations and operational capabilities, this model can be extremely hard to scale as your member base grows and expands.
Some credit unions (for example, those with scale, strong member affinity, excess capital, dedicated talent and time) can see definite benefits with this model. For other credit unions, however, big investments in infrastructure, learning, marketing and momentum-building simply may not be feasible (much less profitable) for their membership bases.
Option 2: Acquiring an existing independent insurance agency. Most notable in this model is an inherent trade-off that usually results in no net gain. On one hand, the acquisition of an up-and-running agency helps alleviate the growing pains associated with regulatory, operational and leadership issues and can even provide an immediate revenue stream. On the other, many existing agencies lack the experience or willingness to invest in mass marketing and may not fully understand the intrinsic values of credit union membership and mission. To be clear, successful agencies employ a sales-first culture that may not resonate with your members.
A Real Consideration
So the potential for poor post-transaction retention of policyholders is a real consideration. Since many of the existing policyholders may not be credit union members, the agency will need to focus on retaining both members and non-members, thereby taking focus away from critical member relationships that go beyond insurance but also that member's deposit and loan products. In this sense, the pro and the con tend to be the same — the pro is that you're handing off the business; the con is that you're handing off the business.
The study we commissioned, combined with other research, paints the same picture. In a direct quote from the study, "Rarely do we see agencies run successfully by former credit union executives. It is important to find someone who has experience in a strong sales culture because that tends to be the deciding factor in the success of any insurance program." And in addition to requiring a prevalent sales culture, strong consumer insurance marketing expertise is necessary to capture members' attention and drive a call to action.
In Part 2, we'll explore two more models: joint ventures and outsourcing.
Stephen Arnold is a vice president at TruStage, a brand of CUNA Mutual Group. Contact him at 608-665-8320, or at
