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Michigan credit unions play the waiting game with new insurance law

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Credit unions in Michigan are waiting to see what impact a new insurance law in the state will have on revenue streams.

Many CUs in the Great Lakes State offer auto insurance, and legislation signed into law this summer is intended to bring down the cost for drivers in a state with some of the nation’s highest auto insurance rates. Offering those products provides additional noninterest income revenue for credit unions. It also helps deepen the relationship with members who utilize those services, since insurance is a sticky product most consumers are loathe to shop for once they have it.

Michigan has had the nation’s highest auto insurance rates for the last six years, according to Insure.com. Annual premiums average over $2,600 – nearly 80% above the national average.

A host of factors contribute to those high rates, and the issue has been a political football for years. The primary culprit is an unusual no-fault system, which requires drivers to carry personal injury protection that covers medical expenses for the policyholder, family members and passengers. While some other states require that coverage, most put a cap on it, whereas Michigan guarantees unlimited lifetime medical benefits in the event of an accident, thereby raising rates.

“In most states there are dates where the liability of a carrier around the claim is sawed off,” explained Jeff Chesky, CEO of Insuritas, which offers insurance solutions for financial institutions. “When you file a claim, the carrier immediately sets aside a dollar amount…and then goes about actually settling the claim. In most states, there’s a period of time where the law says everybody’s done. Michigan has this oddly long tail. It’s extremely distressing for a carrier to know someone could come in years after a claim has been settled and then reopen it. The governor is trying to reset insurance regulations so carriers can charge lower rates.”

The new law broadens the policy options open to drivers, allowing multiple choices for insurance, ranging from maintaining unlimited benefits (the current requirement), all the way to opting out of personal injury protection. That component accounts for roughly 50% of the current cost of insurance, and the law could save consumers anywhere from 10% to 100% on that feature, depending on which option they choose.

The fee factor

Insurance provides a valuable non-interest income stream for the CUs that offer it. According to data from the Credit Union National Association, fees and other income streams at Michigan credit unions were up by 160 basis points during the first quarter of this year, down from a 165 basis point lift one year prior.

But part of the confusion surrounding how the law will impact revenue streams comes from the variety of ways credit unions offer these products. While some credit unions run their own insurance agencies, many partner with outside firms like Members Home & Auto and CUNA Mutual Group’s TruStage, who act as a middleman for traditional insurance carriers. Some credit unions may receive a percentage of the premium paid on insurance policies while others earn a flat fee. How individual credit unions structure those arrangements is likely to have a dramatic impact on how much of a revenue hit CUs take as a result of the new law.

TruStage declined to be interviewed for this story. The Michigan Credit Union League frequently works with lawmakers in Lansing to ensure that CUs aren’t unduly impacted by new legislation, but it is unclear whether the league prioritized this issue. League representatives also declined to be interviewed.

According to Chesky, part of the determination regarding how revenues will be impacted will come down to whether credit unions run their own insurance agencies or partner with outside firms. Chesky declined to go into detail, but said “several” banks and credit unions Insuritas works with in the state run their own agencies, and many more work with outside providers such TruStage and Members Home & Auto.

Lathrup Village-based Michigan First Credit Union runs its own agency, and CEO Michael Poulos said in an email that his credit union has not yet done any analysis on how the new law would impact revenues. Because many details of the law are still up in the air, the impact on premiums is not yet known and “any analysis we did at this point would not be meaningful.”

“Our overall view on the new law is that anything that helps our members get more affordable insurance is a good thing,” he said. “Members who have more money in their pockets will spend or save it, either of which helps the economy and the credit union in the long run. So we are frankly excited for the thousands of members who will have to spend less on insurance. The credit union doesn’t currently have a large revenue stream from these products, so any impact would be negligible.”

Chesky said many executives he has spoken with share that sentiment.

“They’re applauding the reduction in overall premiums,” he said. “It makes a small impact in the commission they earn, but it provides more stability with managing the risk, and I think more members will buy their insurance from [credit unions].”

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