By Ray Birch
LATHRUP VILLAGE, Mich.—Realizing the need to diversify its income streams, one CU has developed a new revenue source it reports has driven 300% compound annual growth since 2016.
Michigan First CU launched its own insurance agency three years ago, and the $975-million institution expects the arm of the credit union to generate more than $1 million in net income in the coming years.
CEO Michael Poulos attributes the success to creating its own agency, as opposed to offering insurance through third-parties.
“We know non-interest income is slipping away,” Poulos told CUToday.info. “We know credit unions have to prepare for that. We sat down four to five years ago and looked to the future and asked how strong are our non-interest income streams. Interchange income is always a concern, as well as overdrafts. There were some clouds on the horizon.
“You never know what the regulatory environment will be and what road bumps might pop up or regulatory barriers will impact our non-interest income,” continued Poulos. “And certainly every credit union is heavily dependent on non-interest income. We knew we had to find other revenue sources that don't require a heavy investment in capital or labor to supplement our existing income streams. And when you are talking about generating a million dollars a year in additional net income, that’s a pretty healthy buffer against some regulatory downturns.”
Poulos said Michigan First expects to generate $6-$7 million this year in net income across the entire credit union, $350,000 of which will come from its Michigan First Insurance Agency, a fully owned CUSO of Michigan First Credit Union.
“We want to get what we make from insurance to a million dollars a year, if not a million and a half, in the coming years,” noted Poulos, who said the credit union expects to eventually add life insurance to its auto and home insurance products.
‘Crumbs on the Table’
Prior to creating its own insurance operation, the credit union had not been making much on its auto and home insurance offerings.
“We were essentially getting crumbs on the table,” said Poulos, which has partnered with Insuritas. “We knew we were not making as much as we possibly could on this business. We knew we had to bring it in-house and make insurance a core product for us. All of our members buy it, and we can offer it to them at a better rate than many of them are receiving currently.”
Poulos said Michigan first does some advertising for its insurance offerings, but simply lets members know the products are available and asks them to compare rates to see if they can get a better deal with the credit union.
“More than one-third of the time we get our members’ business when they compare our rates with others in the market and against what they are already paying. That’s a good percentage,” he said.
Commission is Paid
Michael Poulos
Insuritas President and CEO Jeff Chesky said the average payment for bundled home and auto insurance in the Detroit area is $2,000 a year. He explained that with Michigan First owning its own insurance company, the CU receives a 15% commission each time a policy is renewed.
“They do not get the premium, that goes to the insurance carrier, but they do get the commission, and that is an ongoing revenue stream the credit union receives as long as the policy is in place,” explained Chesky. “That ongoing revenue stream is what is driving the strong non-interest income growth at Michigan First.”
Poulos said the credit union not only has a growing revenue stream but one that does not take a great deal of work to support.
‘The Market is There’
“We don't have to do much,” said Poulos, explaining Michigan First dedicates one AVP-level person to manage the relationship with Insuritas and then staff refer members to the company’s 800-number or website.
“Our members already need insurance, so the market is there. And then once they open a policy with us we begin to earn income off the renewals, and that total just gets larger and larger every year. So one-sixth to one-seventh of our new income stream is coming to us without us doing much work at all.”
Insuritas provides the back-end support.
“They build the relationships with a variety of insurance partners. They bring the licensed agents to the field,” said Poulos. “I think about 80% of insurance is purchased over the phone or online. So there's no need for the member to be standing here at the credit union.”
‘This is Important’
The CEO added that working with one company, Insuritas, allows the credit union to better control members’ insurance experience.
“That is important,” he said. “We monitor this on a regular basis—the interaction between our members and the insurance agents—and we get great responses from our members. Before, working with several different insurance partners, it was much more difficult to understand and control our members’ experience.”
The decision to bring insurance in house is one Poulos said will only look better as the years advance.
“Every credit union has to figure out a way to make money in different ways, and this is one of the easiest ones that I have found in my 30 years of being a CEO,” said Poulos. “And the exciting part about it is it starts off with actually helping members save money.”