Credit Unions Can Capitalize on Insurance Agency CUSOs to Boost Income
In these days of shrinking margins, many credit unions are looking for additional ways to boost revenues and deepen member relationships. One way Greylock Federal Credit Union is achieving this is through its CUSO and specifically its wholly owned insurance agency. Most banks and credit unions of any size have at least considered getting into the agency business. Most still have not pursued the idea of starting an agency. Many that have are very successful, while others have not been successful even to the point of selling off their agencies
If your credit union is considering adding an insurance agency to its CUSO, there are three absolute prerequisites to being successful. First, be realistic in your expectations and projections. Second, carefully choose insurance partners that you can work long term with, and finally, allow the insurance experts to lead and manage the insurance agency.
Accurate projections tell you how much business an agency might produce. Your projections are the basis by which you determine the price and payment schedule, and it also be what you will use to measure your success at least for the first few years. If properly executed, the synergy between the credit union and the agency can be tremendous. But don't kid yourself; it's fun to talk about synergy, but if your credit union has silos now, the culture won't magically change because you own an agency. You can grow the agency by leveraging the reputation of the credit union in conjunction with an internal sales program to get qualified leads from the member service officers and loan officers to the agency. Every mortgage needs an insurance binder. Why wouldn't a member who is getting a mortgage be receptive to receiving an insurance proposal, especially when the borrower is entitled to a member discount? Members love member benefits. The same thing holds true for commercial lending members. Now that we are into the fourth year we are seeing reciprocity where the agency is referring customers back to the credit union.
Most agency principals are intrinsically motivated so you don't need to motivate them, but it is critical that you don't demotivate them. If you buy an agency and make the principals wealthy they may emotionally check out. That is why you choose your partners carefully and make sure they will stay engaged. One way to protect yourself is to structure the payout over time. Equally important, you should take the time to build a rapport with the partners so all parties have a very clear understanding of the expectations. The other option is to retire the principal and bring in new leadership. Agency principals are wired to be partners, not employees.
Credit union people should not run insurance agencies; insurance people should. We're "bankers," not insurance specialists. Insurance regulations vary from state to state, but regardless of the regulations you must keep in mind that insurance is a totally different industry. The agency needs to run as an independent business. At Greylock we have been able to provide infrastructure support including accounting, facilities, human resources, marketing and information systems. One key difference between agencies and credit unions is that agencies thrive and survive on renewals. Therefore, it is a much stronger, relationship-driven model than credit unions that are more transactionally dependent for their revenues. The commercial lending department at a credit union is the one most similar to an agency. The big difference is that insurance producers work solely on commissions for new and business renewals. Working for commissions requires a professional with a very different personality than that of a salaried and bonused lender.
Our initial entry into the insurance agency business was a marketing agreement with a local agency, but even with a tremendous amount of effort on our part the results were unsatisfactory. We then decided to purchase an agency and have subsequently purchased two other agencies. The first year revenues were small, but they have increased significantly each year.
If you do consider purchasing an agency we recommend that you enlist the services of an attorney and an agency consultant specializing in agency mergers and acquisitions. These consultants will even identify potential agencies for you if you don't have a specific agency in mind. They will lead you through the due diligence, help you establish a fair price, and advise you how to structure the purchase in a way that will minimize your risk. Knowledge and guidance are powerful negotiating tools and are vital to setting realistic expectations.