2011 NAFCU Annual Conference and Exhibition

Debt Protection and Credit Insurance

Benchmarking Survey Results

John Gibbons

National Sales Director

Securian Financial Group, Inc.

June 30, 2011

Background and Objectives

• NAFCU Services Corporation and Securian Financial Group (NAFCU Services’

Preferred Partner for Debt Protection and Credit Insurance products) partnered

to conduct research with NAFCU member credit unions regarding their

experiences with Debt Protection and Credit Insurance products

• Objectives: to provide credit unions with benchmarking data to use when

considering Debt Protection versus Credit Insurance and what contributes to

overall program satisfaction and success

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Specific Measurements

• Factors contributing to the overall satisfaction and success of credit unions

with Debt Protection programs

• Factors contributing to the overall satisfaction of credit unions with Credit

Insurance programs

• Credit union likes and dislikes of both programs

• Peer recommendations and what to avoid when implementing Debt Protection

• Reasons why credit unions have considered Debt Protection in the past and

why they will reconsider the program in the future

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Methodology

• Securian’s market research department, Securian’s financial institution division

and NAFCU Services created an online survey delivered to NAFCU member

credit union managers with “lending” titles

• The survey was delivered to all NAFCU member credit unions, regardless of

Debt Protection and/or Credit Insurance provider

• The study was conducted in two phases in the spring and fall of 2010; the

second was added to increase overall response and make the data more

meaningful

• In total, 121 out of a possible 749 responses were received, yielding a 16%

response rate

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Who Offers

Debt Protection?

• A total of 20% of respondents currently offer Debt Protection

• Nearly half of respondents offering Debt Protection implemented their

programs during the past two years, with the highest concentration in 2008 and

2010

• Debt Protection is more prevalent among respondents with larger asset sizes

5

17%13%

17%4%4%4%4%4%

33%

0% 20% 40%

20102009200820072006200520042003

Not Sure

Year Debt Protection Implemented

Debt Protection

Protected Loan Types

• Loan types most commonly protected within Debt Protection programs are

Consumer, Home Equity and Credit Cards

6

0%

4%

13%

54%

71%

92%

0% 20% 40% 60% 80% 100%

Commercial loans

Other*

Mortgage loans

Credit Cards

Home equity loans

Consumer loans

Debt Protection Product Types Offered

n. 24; Select all that apply

*Other: Vehicles only

• Protected events most commonly offered are Death and Disability, both at 96%

and Involuntary Unemployment at 67%

• Death and Disability are the most commonly offered protected events across

all product types, followed by Involuntary Unemployment, Hospitalization and

Family Leave respectively

7

4%

8%

13%

67%

96%

96%

0% 20% 40% 60% 80% 100%

Other*

Family leave

Hospitalization

Involuntary unemployment

Disability

Death

Events Covered by Debt Protection

n. 24; Select all that apply

*Other: Loan default

Debt Protection

Protected Events

• “Protecting credit union assets and “providing members a variety of benefit

options” top the list of statements that most influenced the decision to

implement a Debt Protection program

– “We were offering straight credit life/disability products and decided to

offer the debt protection coverage to help our members in involuntary

unemployment situations”

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Debt Protection

Influencing Statements

• Overall Satisfaction with the credit unions’ Debt Protection program is high at

81% (based on the sum of the top two ratings)

• “Provider administration services” and “Program design” top the list of Debt

Protection program aspects that satisfy the most

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Overall Satisfaction Percent

% Very Satisfied – 7 33

6 48

5 19

4 0

3 0

2 0

Very Dissatisfied – 1 0

Total 100

n. 21

Overall Satisfaction

with Debt Protection

Debt Protection Program

Likes and Dislikes

• When asked to identify what respondents particularly like about their Debt

Protection program, “Easy to use and offer” and the “ability to tailor the

program to best meet their needs” are most commonly mentioned

– “Easy to use, claims process is very good”

– “That we were able to make the price more affordable for members”

– “Our ability to set the parameter and pricing margins for each product”

– “We were able to tailor our own pricing and product combinations for the

best value for our members”

• No common themes are apparent regarding particular dislikes of their Debt

Protection program

• The few items identified include lack of core processor support, program

exclusions and desire to increase penetration

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Debt Protection

Program Changes

• Most respondents indicated they have NOT made changes to their Debt

Protection program since initial implementation

• Verbatim comments referred to the addition of incentives, re-pricing and

adjusting benefits:

– “Incentives are now paid and management’s focus on the program”

– “We re-priced some of the plans”

– “Increased covered limits”

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Debt Protection

Program Experience

• 64% of respondents who implemented

a Debt Protection program indicate their

protected loan volume has increased

• When asked to indicate by what

percentage, responses range from

1% to 53%; half of the percentages

reported are from 25% and above

• 42% of respondents indicating an

increase have had their Debt Protection program in place since 2008

• Of those seeing no change in their protected loan volume, 75% implemented their

program in 2010

• Only two respondents indicate a decrease in protected loan volume

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21%

36%

21%

21%

Percentage Protected Loans Increased

Less than 10%

10% - 24%

25% - 49%

50% & Above

n. 14

Debt Protection Program

Fee Income Experience

• 55% of respondents who

implemented a Debt Protection

program indicate their fee income

increased

• When asked by what percentages,

responses ranged from an increase

of 3% to 100+%; half of percentages

reported are from 30% and above

• 42% of respondents indicating an increase have had their Debt Protection

program in place since 2008

• Of those seeing no change, 75% just implemented their program in 2010

• Only two respondents indicate a decrease in their fee income

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25%

33%8%

17%

17%

Percentage Loan Protection Product Fee Income Increased

Less than 10%

10% - 24%

25% - 49%

50% - 74%

75% and Above

n. 12

• Overall success with the credit unions’ Debt Protection programs is high at

91% (based on the sum of the top two ratings)

14

Overall Success Percent

%

Extremely Successful - 4 26

3 65

2 9

Not at all Successful - 1 0

Total 100

n. 23

Overall Success

with Debt Protection

• Respondents were asked to identify the two most important factors contributing

to their credit union’s Debt Protection success

• Training programs are mentioned most often, followed by:

• Respondents cite insufficient staff training and staff’s lack of sales culture as

explanations why their Debt Protection Program is less successful

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Debt Protection Success Factors Percent

% Training 26

Pricing 18

Variety of coverage 18

Easy 15

n. 17 participants, 34 responses

Overall Success

with Debt Protection (cont.)

• Factors contributing to success

– “Training of staff on how to sell product”

– “Ongoing training to reinforce benefits”

– “Member affordability”

– “Fair cost/benefit”

– “Providing a more diverse loan protection product for members”

– “Program simplicity”

– “Sales incentives”

• Factors contributing to less successful programs

– “We need to train more staff on how to offer it to our members”

– “We do not have a sales culture at the credit union.”

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Overall Success

with Debt Protection (cont.)

• When asked what recommendations for success respondents would offer to

another credit union considering Debt Protection, common themes include

offering staff training and incentives to sell Debt Protection

– “Do it now, and make sure you incorporate continual periodic training

updates and follow-ups with your staff”

– “Train and incent”

– “It is a good move to work with their consultant to develop plans their

members will buy”

– “Determine needs of your member in this economy”

– “Partner with a company that can give you the flexibility to tailor the

program to your membership”

– “Cover unemployment risks”

– “Either go all or none in the program. Do not split as we did between

credit life and disability and debt [protection].”17

Peer Recommendations

for Debt Protection

• A question about what to avoid when moving to a Debt Protection program

yielded little response; no common themes are apparent

– “There’s nothing to avoid, but be careful and do your homework on setting

pricing and margins for the products”

– “Make sure the data processor can handle another protection program”

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What to Avoid When

Implementing Debt Protection

• 52% of those without

a Debt Protection program

in place have considered

offering one at their credit

union

• Among those who did

not consider offering Debt

Protection, explanations include common themes such as lack of

awareness/understanding, no interest in product, too expensive and not a

priority

• Of those who have considered offering Debt Protection the below reasons top

the list of why the credit union did not pursue a program (the majority of “Other”

responses include themes such as “currently considering” and “not a priority”)

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7%

9%

11%

13%

15%

17%

33%

44%

0% 20% 40% 60% 80% 100%

Benefit terms inadequate

Life events covered insufficient

Minimal fee income generation anticipated

Lack of member interest

Technology requirements

Product complexity

Too expensive

Other*

Reasons Debt Protection Not Pursued

n. 54; Select all that apply

Those with No Debt Protection

Program in Place

• 83% of those without a current Debt Protection program indicate they will

reconsider it in the future

• 77% of respondents might consider offering a Debt Protection program in the

next two years

20

Will Reconsider Offering Debt Protection Percent

% Yes 83

No 17

Total 100

n.96

Timeframe Credit Union Might Reconsider

Offering Debt Protection

Percent

%Less than one year 39

1 – 2 years 37.5

3 – 5 years 6

More than 5 years 0

Not sure 17.5

Total 100n.80

Reconsidering Debt Protection

in the Future

• “Protects credit union assets,” “Provides members a variety of benefit options”

and “Generates credit union income” top the list as reasons why respondents

will reconsider offering a Debt Protection program in the future

– “Periodic review of products to ensure we are offering the best to our

members”

21

8%

15%

48%

58%

64%

68%

74%

78%

0% 20% 40% 60% 80% 100%

Other*

Reduces CU licensing costs

Is affordable to members

Flexibility in program design, pricing, marketing

Meets members' needs

Generates CU income

Provides members variety of benefit options

Protects CU assets

Reasons for Reconsidering Offering Debt Protection

n. 80; Select all that apply

Reconsidering Debt Protection

in the Future (cont)

• A total of 90% of survey respondents offer a Credit Insurance program at their

credit union

• Some credit unions seem to be offering both Debt Protection and Credit

Insurance

22

Who Offers

Credit Insurance?

• Among those with a Credit Insurance program, overall satisfaction is modest at

45% satisfied (based on the sum of the top two ratings)

23

Overall satisfaction with Credit

Insurance Program

Percent

%**Very Satisfied - 7 14.3

6 30.5

5 27.6

4 17.1

3 6.7

2 2.9

Not at all Satisfied – 1 1

Total 100

Credit Insurance Not Offered n. 12

n.117

**Percentages based only on those with a credit insurance program (n. 105)

Overall Satisfaction

with Credit Insurance

Overall Satisfaction

with Credit Insurance (cont)

• Respondents rating their satisfaction as a 3, 2, or 1 were asked to expand on

why they are not currently satisfied

– “Expensive for members”

– “It’s not the carrier; it is simply the fact that people today in our credit

union are not interested in credit insurance”

– “Very little interest from members for simple life/disability”

– “Very restrictive and premiums are high. Limited member interest due to

price points.”

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Credit Insurance

Likes and Dislikes

• Ease of selling/administering and member benefit top the list of most

commonly mentioned aspects of respondents’ Credit Insurance programs they

particularly like

– “Easy to understand and administer”

– “Meets our membership needs”

– “Convenient and relatively inexpensive”

– “Protects the credit union, good income”

– “Excellent customer services in handling claims”

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Credit Insurance

Likes and Dislikes (cont)

• Respondents who currently offer Credit Insurance were likewise asked what

aspects, if any, they particularly dislike about their program

• Among those offering feedback, “doesn’t meet needs,” “challenges with the

claims process” and “price” are the most commonly-mentioned aspects they

dislike

– “Limited in the types of events covered”

– “Lack of options”

– “Difficult claims process”

– “Cost compared to protection”

– “Rates are too high”

– “Unable to pay incentives to MSRs and Loan Officers since it is an

insurance product and they aren’t licensed”

– “We don’t make enough money on it”

– “We have branches in 3 states, 3 different rates”26

Key Takeaways

• Although only 20% of respondents offer Debt Protection, they are significantly

more satisfied and see more success with this program than those who offer

only Credit Insurance (81% versus 45%)

• More than half of those with Debt Protection in place saw increased protected

loan volumes and fee income

• According to your peers, Debt Protection program success can be attributed to:

– Effective staff training (both in-house and from your provider) and

motivating sales incentives

– Prudent design and pricing that meets your members’ needs

– Offering additional protected events, such as Involuntary Unemployment

coverage, to meet member needs

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Key Takeaways (cont)

• 83% of credit unions who have considered Debt Protection in the past will

consider it again in the future

– Strong desire for product education and design/pricing consultation

– A Debt Protection needs analysis is essential

• Although overall satisfaction with Credit Insurance was low in this survey, it

remains a viable product that a majority of credit unions continue to offer

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Thank You

• For more information on the survey, please visit our booth in the Preferred

Partner Pavilion or http://www.nafcu.org/securian

• For more information regarding Debt Protection or Credit Insurance, including

client research Securian has conducted in the past:

john.gibbons@securian.com

612.234.1018

Follow me @securianjohn

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