The relationship between credit unions and their members puts credit unions in a desirable position to offer personal lines of insurance. And credit unions with more than 55,000 members are wise to own an insurance company to facilitate such a product, says Lyle Sandlin, president of Wescom Financial Services, a CUSO launched by Wescom Credit Union ($2.52B, Pasadena, CA) in 2004.
“The relationship marketing opportunity exceeds the opportunity of main street American insurance agencies,” Sandlin says.
For example, an insurance agency might connect with a customer four to seven times a year. A credit union that also has an insurance relationship with members is able to increase its touch points to nearly 20 a year.
“The relationship credit unions build with members who elect to buy coverage is far better than the average agency,” Sandlin says. “Even with the huge amount of money big agencies spend on advertising, they still can’t build that kind of relationship.”
According to Sandlin, a credit union that starts its own insurance CUSO from scratch can expect to turn a profit in approximately six years. A credit union that opts to mold an existing company to fit its needs can expect to make its money back in four-and-a-half to five years. Either method, however, offers the same benefits and opportunities: connect with members and reinforce the credit union’s footprint.
When a credit union offers insurance through a CUSO, it increases its wallet share while fulfilling a member need. Wescom offers the same superior service through its CUSO that members expect from the credit union. As far as member are concerned, there is no distinction between Wescom Credit Union and Wescom Financial Services.
“We don’t look at the CUSO as a function of the credit union,” Sandlin says. “Our CUSO employees are on the same wage scale as the credit union staff.”
And the credit union does not incentivize its staff’s insurance referrals. Instead, credit union staff view insurance as a core product similar to a savings account.
“Each branch has a monthly insurance policy goal, same as they do new members,” Sandlin says. “We weight the branches on their achievement of certain goals.”
Reaching Goals Through Relationship Banking
Wescom offers a relationship banking program, Signature Membership, that rewards members for using the credit union’s financial products and services. Each service the credit union offers — such as mortgages, credit cards, insurance, or checking accounts — has a value it bases on the service’s profitability or desirability. The credit union then charges a lower fee for products and services to members with more points.
“A checking account would be one point, an insurance policy would be two points, and a home mortgage would be three points,” Sandlin illustrates. “If you have one point, then a cashier’s check might be $2.50 and the cost of your checking account might be $5. It takes about eight points before the credit union offers everything without a fee.”
Wescom tells new members about relationship banking and encourages them to select the Signature Membership relationships they want. Approximately 6% of new members select insurance. The CUSO takes over when a member asks about insurance or responds to one of the automated insurance offers the credit union has established to coincide with certain financial products like auto loans.
More Bang For The Buck
Wescom Financial Services averages $150,000 per year in revenue per employee. That is 20% higher than the national average of insurance companies and insurance CUSOs, which, according to Sandlin, is $125,000 per year. Although that lags behind credit unions nationally, which average nearly $200,000 in revenue per employee, Wescom Financial Services serves a higher number of members per employee than most credit unions. The average member-per-employee ratio for credit unions with $1 billion or more in assets is 416 members per employee, according to Callahan & Associates' Peer-to-Peer Analytics. According to Sandlin, Wescom Financial Services serves 550 members per employee.
“The CUSO is extremely successful,” Sandlin says. “The insurance agency is a terrific business model." According to Sandlin, the insurance CUSO spends $0.65 to get a dollar, while the average credit unions spent $0.78 to make make a dollar in 1Q2013.