Many credit unions that have launched insurance offerings for their members – whether to provide a cheaper alternative, a more convenient product package, or both – have found that insurance products are now a crucial supplement to their lending services.
Adding insurance services requires a significant amount of forethought and planning – especially if a credit union establishes a CUSO to handle them as South Carolina Federal Credit Union ($1.3B, N. Charleston, SC) is doing. But those services fill a need for members and have proven to provide a reliable source of income for the credit union.
Credit unions without insurance companies of their own have found that linking with outside providers to fill an insurance need has proven to be in members’ best interests. Destinations Credit Union’s ($58.4B, Baltimore, MD) newly converted GAP insurance and VyStar Credit Union's ($4.7B, Jacksonville, FL) title insurance offerings deliver consistent revenue streams to their credit unions as the insurance complements their auto loan and mortgage programs.
Insurance CUSOs From The Ground Up
Faced with declining revenue from overdraft income and interchange income, South Carolina Federal Credit Union wanted to launch a financial service that would provide a reliable income stream.
So, it established South Carolina Financial Solutions LLC in May to offer the full gamut of insurance products, focusing mainly on life insurance. The CUSO offers identity theft protection and pet insurance and carries some supplemental nonmedical coverages. Now, it’s readying to roll out its a long-term care offering under a group-type rate to offer members a “much better deal,” says Bonnie Cuiffo, chief information officer.
“Ultimately we’d like to turn a profit, but the primary goal of a credit union is to see our members needs and to meet those needs,” Cuiffo says. “With the number of members we have and the quality of products we’re offering, we feel like by year four or five we’ll start to become profitable in the insurance business.”
Instead of acquiring another agency with a book of business, South Carolina FCU chose to build from the ground up. Executives had to ensure they set up the expectations with its CUSO board that the endeavor would take several years before it turned a profit, Cuiffo says. “In the meantime you are fulfilling a great need for your members,” she says.
The insurance agents are not commissioned so members will feel like the agents are acting in their best interest instead of pushing the highest premium rate. The credit union has linked its investment services with its insurance services to offer members comprehensive financial sessions. “We’re trying to coordinate the efforts to make it more efficient."
GAP Insurance Protects The Credit Union
Destinations Credit Union members have found great value in purchasing GAP insurance to ensure their loans are repaid when their insurance companies do not pay the full value of the outstanding loan on a totaled vehicle, says CEO Brian Vittek.
The Baltimore, MD-based credit union recently converted its CUNA Mutual offering to a new product called Debt Protection, which covers the loan difference between what an insurance company pays and a borrower owes under three scenarios: loss of life, disability, and involuntary loss of a job. The insurance has helped the credit union minimize loss by ensuring its auto loans are continually repaid, Vittek says.
“We are strong believers in the additional insurance. That has really offset a lot of loss within our membership,” Vittek says. “We can speak from true testimony from members that have really benefitted from the purchase of these insurance products.”
Destinations agents uses case studies when they talk to members who are undecided about whether to buy the insurance. To make it more appealing, the credit union is willing to extend the terms of the loan for members who purchase GAP insurance to keep their monthly payments on par with what they would pay without the insurance.
Destinations CU just started a lenders protection insurance program that has allowed it to expand its lending capabilities to lesser qualified borrowers. In the event a car is repossessed, the coverage protects the credit union, which purchases the policy without passing on the cost to the member. Destinations, which is charging up to $7,000 per loan on deficiency balances, is trying to insulate itself from the risk of defaulting auto loan holders. It’s had that program since June and has booked seven loans through that program that it otherwise would not have booked because of the members’ riskier profiles.
“It minimizes our risk and enables us to lend,” Vittek says.
Title Insurance Complements Mortgage Programs
VyStar Credit Union, the second-largest credit in Florida by assets after Suncoast Schools Credit Union ($5.1B, Tampa, FL), started offing title insurance through its CUSO in 2003, when Suncoast Schools was the only other credit union in the state with the product, says Dale Orr, president of VyStar Title Agency.
“We have been closing loans nonstop since we opened doors,” says Orr, who was previously head of the mortgage division. The title insurance branch has grown from a staff of four to a staff of 10 and now closes an average of 200 loans per month. The program generates more than $1 million per year in gross income through gross title commissions.
The title agency conducts the full title insurance service in-house – from reviewing the title, pre-closing processes, closing, and any disbursements. Members can purchase title insurance for new home purchases, refinances, or home equity loans.
“You have to have a realistic expectation of how you can build the business based on your membership,” Orr says. “But members are excited when they find out they can do pretty much anything through the credit union.”