CONCORD, Ohio – Opportunities abound for credit unions looking to grow via insurance agency acquisition.
"I think that is one of the great things about this investment-you start seeing returns on day one if performed properly," said Senior Vice President Tom Linn of MarshBerry, a management consulting firm for the financial services industry and provider of consulting services for independent insurance agency owners and brokers. "Insurance agencies provide long-term, highly stable income flow that protects credit unions from interest rate fluctuations and gives them an opportunity to provide a wider array of services to members-adding more value to membership."
That doesn't mean an insurance agency is the right fit for everyone cautions Linn.
"Smaller credit unions interested in the opportunities an insurance agency can provide may be better served by outsourcing the insurance process through either CUNA Mutual or others who provide turnkey services," said Linn. "This is also something that I think is geared toward credit union management that is more innovative and willing to go off the beaten path. It is still a little new area for credit unions and if the credit union is really conservative then it may not be a right match."
Another consideration is that not every insurance agency is a good match for a credit union. Linn says to first look at the agency's management team, then make sure it has a powerful personal line capability, and finally it should have the ability to write commercial lines.
"I can't over emphasize retaining quality agency management," said Linn. "It is extremely important to keep quality leaders. Where acquisitions have gone poorly it goes back to management-either they were purchase poor or the team left. The employment contract should require them to stay and provide substantial incentives going forward."
Linn adds that successful acquisition signing amounts should be paid over one to five years in earn out so it keeps the selling management involved in the success of the agency.
"The first agency purchased is the foundation from which to build upon," said Linn. "Make sure the person running the agency is someone you want as a partner to spearhead operations. The easiest way to get in trouble is to get involved with an owner/manager who just wants to take the money and run."
The process of buying an insurance agency is a lengthy one that can take anywhere from nine months to two years.
"Remember, the best seller in the area is usually not for sale," said Linn. "So going to an organization that isn't for sale, presenting this new opportunity to them and the agency owner being willing to sell-that thought process takes time."
Education on the part of the agency owner and the credit union is key.
"This is an area that in general credit unions have little to no experience-they need someone to guide them through the process about the marketplace, property and casualty in general, how it works, the advantages and disadvantages of ownership and a realistic payback," said Linn. "If they are at the point that they are interested in getting into new types of revenue sources then either call us or someone like us to start the education process on the insurance agency alternative and how it compares to other strategic choices." Linn says credit unions have to also ensure they are prepared from staffing to operations to handle the volume of business. So what kind of return can credit unions realistically expect? Linn says if key managers and sales people are retained credit unions should see a first-year return of 7% to 10%, then move up to 10% to 15% in subsequent years or even higher than 20%. "We first got involved with credit unions by default. A credit union called us for help and from there the referrals have kept coming," said Linn. "What we've found is that credit unions are excellent insurance agency owners because their membership is much more loyal than bank customers and as a result are more likely to use them for their insurance needs."
Linn adds that the penetration rate as far as cross-selling the credit union is also much higher than banks since credit union members are more interested in using ancillary services the credit union might offer than bank customers.
-mdigiovanni@cutimes.com
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