A Strategy To Serve Members And Build Non-Interest Income

Punitive fees are going away, and employee expenses are increasing. Finding member-friendly sources of non-interest income is more important than ever.

 
 

Top-Level Takeaways

  • CBC Federal Credit Union launched an insurance CUSO in August 2021 to provide members with money-saving options. As an added bonus, the CUSO also adds a new source of non-interest income.
  • The CBC Insurance Agency has already surpassed its 100-policy milestone.
  • The credit union now has plans to offer DMV registration services in-branch.

Financial institutions are taking a new look at fee strategies and cutting non-sufficient funds fees that punish members in the most need. At the same time, employee expenses are increasing as FIs work to recruit and keep top talent. The tension between these new realities makes finding member-friendly sources of non-interest income more important than ever.

CBC Federal Credit Union ($694.9M, Oxnard, CA) celebrated the official launch of its insurance CUSO, the CBC Insurance Agency, in August 2021.

The credit union saw starting an insurance CUSO as a great opportunity to provide a service to members while generating non-interest income. Members need insurance, the products dovetail nicely with auto and home loans, and insurance tends to be the second-largest share of wallet behind banking relationships. As the keeper of members’ money, it’s a natural progression for the credit union to sell insurance.

Maria Mayela Prendiz, AVP of Insurance Services, CBC FCU

“I can’t think of any new frontier that is a bigger opportunity than insurance is to make additional income,” says Maria Mayela Prendiz, assistant vice president of insurance services at CBC.

However, achieving profitability in an insurance CUSO doesn’t happen overnight. For revenue to outpace expenses, the CUSO must build new business — and then renew it annually. CBC is building out its business by building contacts and having conversations, and the CUSO expects it to take two full years of renewals plus new business growth to start operating a profitable program.

In addition to diversifying the credit union’s income streams with a new source of non-interest income, CBC Insurance Agency also provides better options for members.

“The counties we serve in California include several underserved populations,” Prendiz says. “These individuals and families are always looking for ways to save money and often find themselves underinsured. The goal of our CUSO is to help them save and explain their coverage options so they can make an informed choice.”

CBC has been actively working with members since September 2021, and, so far, the feedback has been positive. Members like having a one-stop shop for their checking, savings, auto loans, mortgages, and, now, auto and home insurance.

A Significant Startup To Start Up

Several expenses can vary in price from state to state, advises Prendiz. These include obtaining a business license with the Department of Insurance, state filing, insurance for the business, and Errors and Omissions Bonds.

Additionally, credit unions need to have a core system that will help them manage the CUSO’s book by interfacing with the insurance side of the business and offering the ability to instantly rate a new prospect.

CU QUICK FACTS

CBC Federal Credit Union
DATA AS OF 03.31.22

HQ: Oxnard, CA
ASSETS: $749.5M
MEMBERS: 27,337
BRANCHES: 3
12-MO SHARE GROWTH: 23.9%
12-MO LOAN GROWTH: 23.7%
ROA: 0.13%

Credit unions also need the trust of the insurance carriers to sell their policies, which can take time and experience. CBC found that joining an insurance cluster helped build its reputation much faster, which led to direct carrier access. Finally, to reduce training time, the CUSO hired only employees that were already licensed and had some insurance experience.

Benefits To The Cooperative. Benefits To The Members.

The CUSO benefits the credit union, which recently received its CDFI certification, by offering a new stream of income in the form of commissions — which range from 10% to 13% — for policies written, paid directly by the insurance carriers. It also benefits the members as the CUSO works with multiple carriers and helps members save money and understand different options to find the best deal.

Other insurance agencies often charge their customers broker fees as well as fees for updates like name changes. CBC’s insurance CUSO does not charge any broker fees, so the CUSO can save members money on their policy and help them save the fees they’d pay to shop around or write a policy through other providers.

“Broker fees can add up and have a negative impact on underserved communities,” Prendiz says. “That’s why we don’t charge any fees to members and educate them on the difference between the state minimums and better coverage options.”

Convenience For Members And Non-Members Alike

CBC’s CUSO offers insurance services online, by phone, and in-person by appointment at all three branch locations. Prendiz and one other credit union employee are licensed to sell insurance; a third person who can sell insurance started in April.

“Our intention is to have a licensed agent in each office,” Prendiz says.

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Open Guide

Soon, the credit union will also offer DMV registration services on-site for members who want to pick up new registration stickers and take care of processing name and title changes.

“That will give us an opportunity to see if we can help them save money on their auto insurance,” Prendiz says.

For individuals whose license is suspended because their insurance has lapsed, the CUSO will be able to write a new policy and release the suspension on the spot.

Incentives For Using The CUSO

The CUSO offers a range of policies — including pet insurance, umbrella insurance, earthquake/flood insurance, boat insurance, and others — but auto and home loans are the main drivers of referral business. When someone applies for a loan, the credit union staff member tells the borrower they can get their auto insurance with CBC as well. The CUSO provides a free quote and an incentive.

“If they buy the insurance through us, we give them 0.25% off their auto loan interest rate,” Prendiz says.

On the home loan side, members receive $400 off their closing costs if they use the CUSO for homeowners’ insurance. The offer is attractive to members and streamlines the credit union’s evidence of insurance process for mortgages and auto loans.

Key Takeaways And Lessons Learned

According to CBC, the biggest takeaway from its experience starting an insurance CUSO is that it can begin on a small scale and build over time. The credit union originally thought it could launch the CUSO in three months, but it took closer to 10 months. COVID-19 didn’t help matters, but the startup process takes time and resources even without a pandemic.

According to Prendiz, many credit unions stand on the fence for a long time, unsure if they want to get in the business or not. But that uncertainty is unnecessary.

“If a credit union has checked all the boxes in writing its business case, then get started and stick with the discipline to see it through,” she says. “I don’t know of any fast, easy ways to make revenue. Roll-up your sleeves and begin the process. Once you build the right relationships to complete your journey, your only regret will be not starting sooner.”

Results And Future Plans

CBC Insurance Agency has already surpassed the 100 policy milestone. As of early April, it had written 132 policies — primarily a mix of auto and home along with a few life and commercial policies — for 95 members.

Still, awareness is a hurdle.

“A lot of members still don’t know we exist,” Prendiz says. “We’ve got almost 30,000 members and can serve non-members as well, so there is a big opportunity to let people know how we can help them.”

For credit unions interested in starting an insurance CUSO, Prendiz says building a book of business can be challenging and encourages others to seek partnerships. In CBC’s case, it was the first credit union to join the Pacific Agents Alliance of SIAA, a larger insurance company that allowed the CUSO to get direct appointments with A-rated insurance carriers such as Allstate, Metlife, Nationwide and others, for a fee, as it builds its own book of business.

“We’re also talking with other credit unions about potential partnerships,” Prendiz says. “Starting your own CUSO takes time and money.”

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