It’s nearly football season, which gives me license to use whatever football metaphor I choose – at this stage of the pre-season they aren’t stale yet!
A football metaphor is also appropriate because of what you are likely to see when you’re watching a game on TV – commercials, and lots of them. Among them you’ve probably noticed ads from State Farm – but how many of you noticed a very important change in their positioning, one that has tremendous implications for credit unions?
If you look closely, the ads stress three things – Insurance, Mutual Funds and ‘State Farm Bank.’ We certainly count on State Farm to be selling insurance. But full-fledged banking solutions (mortgages, car loans, home equity loans) are not something most consumers expect from an insurance provider.
Remember when H&R Block made a strategic move into banking a few years ago to capture a larger share of client refund dollars? Now they offer checking and savings accounts, IRAs, CDs, lines of credits, and even their own debit and credit cards.
Just as this move from H&R Block threatened credit unions by providing competition, so too does this change in positioning from State Farm. Just like paying taxes, buying insurance is another thing that your members do each year. In fact, you bring insurance agents in town direct business by making insurance a prerequisite for receiving a car or home loan (and they thank you for it, believe me!). The entry of a firm like State Farm into the business brings scale and national brand equity to the table, which means that you’re now facing a well-funded and formidable competitor in the banking landscape that wants a larger share of your member dollars.
Another factor that makes things arguably worse is that the insurance industry is notorious for being slow to innovate, but being a fast follower. So if this approach yields benefits for State Farm, then we’re likely to see others follow suit.
The insurance transaction represents the risk point for your member. Since insurance is required when a member buys a house or a car, members are sent to an insurance agent before a loan can be finalized with your credit union. The first thing that agent is going to do is to ask some variation on a basic trial close question – ‘if I can get you that mortgage/car loan/home equity loan cheaper, would you be willing to buy it here?’ This creates the danger that a member may view the insurance agent as a one-stop shop—thus losing your credit union business. And who among us would say no to that question – it never hurts to look, right?
So you have two choices: Let your member be pitched on moving their loans to an insurance agency-affiliated bank whenever they buy insurance, or you can fight back. Go on the offense and start stealing market share by offering your own insurance solutions to members.
Back in July at the 2012 NAFCU Annual Conference in July, Jeff Chesky from Insuritas (the NAFCU Services Preferred Partner for turnkey, outsourced insurance brokerages for credit unions) laid out a strategy for dealing with this competitive threat in great detail, with a few examples of credit unions that are already actively employing it.
The key? Play offense!
Instead of sending members to an insurance agent, let them purchase insurance directly from your web site. Not only do you prevent a member’s exposure to the point of deal risk, but you have an opportunity to generate significant ongoing revenue from brokering the transaction. You’re also leveraging that trusted advisor relationship credit unions have with their members.
Not that credit unions should always follow the lead of banks, but they too see the strategic necessity and opportunity offered by playing offense here. The CEO of Wells Fargo told an audience at an investor conference that he is “… in the market for an insurance acquisition.“ Why? He told them in unequivocal terms – “Wells is one of the largest originators of mortgages and used car loans, and those borrowers all need insurance.”
Credit unions have the same opportunity as Wells Fargo, and you don’t have to incur the cost and risk of buying an insurance business to make it happen. Please excuse the modest commercial, but the Insuritas technology allows a credit union to offer insurance directly from the website 24/7. The business model is turnkey, so they deal with all the various insurance providers on your behalf. All you have to do is provide space on your web page, traffic from your members, and build awareness among your lending team that members now have a trusted source from which to purchase insurance (YOU).
For more information I’d like to refer you to Jeff’s presentation from Annual Conference here.
Post written by Dave Frankil, President, NAFCU Services Corp.