What's New in Cybertalk?

by Jean Gora
July 1999

Note: CyberTalk is a column that appears monthly in LOMA's Resource, the magazine for insurance and financial services management. To see more contents of the magazine and to see how to subscribe, click on RESOURCE .

Extending Relationships: CUNA Mutual and Credit Unions Online

Despite the consolidation of the financial industry and the introduction of sophisticated electronic services by large institutions, small financial institutions have a future. The relationship between CUNA Mutual and U.S. credit unions suggests why. This month’s CyberTalk examines that relationship and shows how the insurance products and Internet services offered by CUNA Mutual can help even small credit unions to remain viable. Other sectors of the financial industry can learn from this experience. For example, a mid-sized U.S. insurance company could establish a similar set of relationships with small U.S. banks.

CUNA Mutual provides insurance and financial services to credit unions and their members. It has relationships with 99 percent of the 11,700 credit unions in the United States and 30 million credit union members. It sells products and services to credit unions for their own use, and it also wholesales products and services that they retail to individual credit union members. CUNA stands for Credit Union National Association. CUNA Mutual Life had $4 billion in assets at the end of 1998. In 1998, the combined assets of CUNA Mutual Group and CUNA Mutual Life were $7.6 billion, and the combined amount for life insurance in force was $106 billion.

Credit Unions

Credit unions are not-for-profit cooperative financial institutions owned by their members. They serve groups that have a common bond, such as the employees of a corporation or the members of a church. Like banks, they take deposits and make loans. Although some credit unions are large, many are small, local institutions. As not-for-profit organizations, they enjoy tax advantages not available to profit-making financial institutions.

In an era of financial services consolidation and electronic commerce, small financial institutions with low capital are at a substantial competitive disadvantage. Large financial institutions purchase expensive property/casualty coverage for their own operations and employee benefits for their own workers. In countries where bank-insurer affiliations are legal, they offer their own insurance products to the public. They operate their own home banking, online stock brokerage, and insurance agent-referral or direct sales Internet services. They set up their own online links to their branch offices or agents.

Small institutions cannot afford to match the P/C coverage and employee benefits coverage obtained by large institutions. If they were permitted to underwrite their own insurance products, they probably would not have the resources to do so. They cannot afford to develop the home banking, online brokerage, and electronic insurance services that larger institutions offer. With such a list of handicaps, small institutions should, in theory, wither away. But that is not likely to happen because small institutions can become important distributors for financial services offered by some larger institutions that specialize in meeting their needs. CUNA Mutual is such an institution. Its role is likely to help ensure the continued market viability of small credit unions.

CUNA’s Wide Product Range

Because of its relationships with both credit unions and their members, CUNA Mutual offers a wide range of products.

Credit union protection products. CUNA Mutual offers property/casualty coverage designed to protect credit unions as institutions. It offers coverage on automated teller machines, buildings, builder’s risk, business liability, business personal property, data processing, and extra expenses. It offers a fidelity bond coverage that protects credit unions againsyt losses from dishonesty on the part of their employees or directors. In addition, the company offers workers’ compensation coverage, risk management loss control analysis, boiler and machinery insurance, professional liability insurance, special risk insurance, leasing insurance, and a bond service.

Credit union employee protection products. CUNA Mutual provides an assortment of employee benefits products that credit unions can use to cover their employees. It offers 401(k) and other qualified retirement plans, executive benefits programs, Simplified Employee Pensions (SEPs), rollover IRAs, and funding vehicles for both guaranteed and variable accounts. In addition, it provides group health indemnity insurance, group health managed care, group flexible benefits, group administrative services only, voluntary dental insurance, group disability, group life and accident insurance, and flexible spending accounts. Finally, it also offers a series of executive benefits for credit union management. These benefits include supplemental pension plans, executive life insurance, incentive compensation design, tax deferral strategies, and retirement and estate planning.

Credit union member protection products. CUNA Mutual provides a wide range of individual insurance products that credit unions can offer their members. These products include term life, whole life, universal life/variable universal life, accidental death and dismemberment, individual health insurance, long-term care, disability income, dental, cancer, homeowners, condominium, auto, boat, recreational vehicle, renters, mortgage protection term life and disability insurance. CUNA Mutual also offers a number of credit life and credit disability insurance products. As their name implies, credit unions provide credit. Therefore, they have a significant incentive to offer credit insurance products because such products reduce their losses on defaulted loans.

CUNA Mutual also offers a product it calls life savings insurance, a guaranteed-issue term life insurance possibly tied to the balance in a member’s "share" account, the credit union equivalent of a bank savings account. Credit union members pay no direct cost to receive this coverage. Such a product is an excellent example of a true bancassurance product. Many commentators believe that banks and other financial institutions have the ability to make the sale of life insurance to middle class consumers viable. CUNA Mutual’s life savings insurance shows how this belief is being translated into reality.

CUNA Mutual also provides variable annuities and has affiliates that offer mutual funds, securities brokerage and trading, limited partnerships, and unit trusts. Thus, it offers a broad range of sophisticated investment services.

CUNA’s Electronic/Internet Services

In addition to providing insurance and financial services products to credit unions, CUNA Mutual also provides them with an assortment of electronic services. With the widespread use of the Internet, many of these services have migrated to it. CUNA Mutual has also developed electronic services especially for use on the Internet. While some of these services support communication between credit unions and CUNA Mutual, others are targeted at credit union members.

With regard to services developed for credit union members (that is, the end customers of credit unions), CUNA Mutual faces the kind of issue many other insurance companies face with regard to their agents. Like other insurers, who can sell directly to the public on the Internet while bypassing their agents, CUNA Mutual has the ability to do so while bypassing local credit unions. In theory, the company could create its own electronic credit union. Such a credit union would still have to meet the common-bond requirement imposed by law. As noted above, credit unions must serve groups that have a common bond. However, the Internet offers an unprecedented chance to create groups with common bonds. With online communities sprouting around all kinds of interests and needs, the opportunities to create common bond groups are staggering. There is no indication on CUNA Mutual’s Web site that it has taken this route.

Rather, CUNA Mutual has developed a series of Internet services on which established credit unions can place their own brands. Although some of these services require the credit union member to access CUNA Mutual’s Web site from a link on their credit union’s site, these services are structured so that users can return directly to their credit union’s site.

The CUNA Mutual Web Site

CUNA Mutual’s Web site has two major sections. One section describes products and services it offers to credit unions and through them to credit union members. The other, called the Members Financial Network, is designed to be accessed by members through their credit union’s Internet site. This section of the site offers financial calculators, a financial resources library, and an online discount brokerage service that can be linked to members’credit union accounts. It also promotes the company’s credit life and disability insurance products. CUNA Mutual will offer these services to nonmembers of credit unions as well; however, these individuals will be directed first to a search engine that helps them find a credit union they can join.

The section of the CUNA Mutual Web site targeted at credit union executives is significantly larger than the section described above. In this section of the site, CUNA Mutual seeks to sell products and services to credit unions themselves. Among the products and services demonstrated in this part of the site are the following:

Internet loan applications. CUNA Mutual has developed a product called LOANLINERÒ which credit unions can place on their Internet sites and use to generate Internet loan applications. A related application allows credit unions to offer their members the ability to calculate loan amount or payment amount for monthly installment loans. It also supports the calculation of term life and disability coverages on those loans.

A turnkey Internet online banking application. Stanford Federal Credit Union and its affiliated Cardinal Services Corporation have a joint venture with CUNA Mutual to provide credit unions with a turnkey solution to developing an interactive Internet site. Called CyberBranch, the service incorporates home banking, financial planning, all sort of financial calculators, loan applications, check ordering, and information on rates. Credit unions can offer the CyberBranch services under their own brands. Cardinal Services Corporation serves as a reseller for the home banking and bill payment packages of Online Resources and Communications Corporation.

Online insurance claim filing. CUNA Mutual’s Claims Online service allows credit unions to file claims and monitor claim status for credit life, credit disability, loan protection, home mortgage protection and life savings over the Internet. CUNA Mutual offers ECWEB MutuaLinkÒ , which allows credit unions to access their own and their members’ claims and payment information. In addition, it enables credit unions to retrieve and reconcile their daily electronic funds transfer (EFT) balances. They can also submit their monthly premium reports for their credit life, credit disability, loan protection, and life savings products. CUNA Mutual also enables credit union managers to verify whether job applicants qualify for bonding, obtain collateral insurance, request mortgage security coverage, and file claims for bond, property/casualty, plastic card, and collateral insurance.

A user ID and password secure CUNA Mutual’s online services, and information sent between credit unions and CUNA Mutual is encrypted.

Thus, CUNA Mutual’s Internet services are clearly designed to support credit unions rather than bypass them. In so doing, it enables these institutions to offer the kinds of services that much larger financial institutions provide. The Internet’s ability to torpedo the structure of the established insurance and financial services industry is significantly reduced as the established industry molds the Internet to its own uses.

See previous issues of CyberTalk in the CyberTalk Archives.