An E-publication from the Delaware League Services
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First Quarter 2009
Forming Deeper Relationships with Your Members
Did you know it costs significantly more to sell an item to a potential new member than it does to sell that same item to a current member? Or that repeat customers spend 33% more than new customers and are 107% more likely to generate referrals?
It’s hard to ignore statistics like these. Developing your current member relationships is easier than bringing in new business—and your money is more wisely spent. Don’t ignore member prospecting, just use less of your marketing budget for it, and more for deepening current relationships.
Here are three easy ways to deepen relationships and member retention:
1. Honeymoon letters
2. Single-service mailings
3. Relationship pricing
Honeymoon Letters & Postcards
Research strongly indicates that you have a much greater chance of cross-selling products and services to new members within the first six months of the account relationship. New members have just committed to using one of your credit union’s services and are open to receiving and reading additional information regarding their new accounts.
We recommend sending three letters or postcards. The first letter or postcard focuses on thanking the member for the new relationship and provides a brief overview of some of your products and services. The second and third letters or postcards promote one of your primary services, and we recommend including a special incentive.
Single-Service Mailings
Most likely, a good percentage of your members have only one relationship with your credit union—a share savings account. For these members, send out quarterly mailers regarding products and services that would meet their needs, and include incentives to get them to act.
Relationship Pricing
Reward your members who use the credit union as their primary financial institution with relationship pricing. The most important things to consider when developing relationship pricing are:
• Keep it simple
• Provide real value for maintaining the relationship
• Ensure that the relationship meets your credit union’s goals
By focusing on marketing to your existing members through honeymoon letters and postcards, single-service mailings and relationship pricing, you will build a deeper relationship with them. Augment those efforts with product cross-selling and outstanding customer service. As a result, your members will be more likely to use you as their primary financial institution and remain a member of your credit union for life.
Article submitted by Visions, Ink.
Celebrating 30 Years of Serving Credit Unions
www.visionsink.com • 301.868.9577 • 866.844.4775
Reverse Mortgages Help Seniors Improve the Quality of Their Lives
By Don Jeffries, Reverse Mortgage Specialist
Reverse mortgage loans are based on a person’s home as collateral, not on their income or creditworthiness. The loan can be obtained as a lump sum, line of credit, (the most popular) monthly payments or a combination of the above. The money is not repaid until the homeowner dies or otherwise permanently leaves the house. After that, the borrower or his heirs repay the loan, plus the accrued interest. An important point, the amount of the repayment cannot exceed the value of the home.
The actual size of a reverse mortgage loan depends on the age of the borrower, the value of the house, closing costs, and current interest rates. Generally, the older the borrower, the more valuable the home, the lower the interest rate, the more money a reverse mortgage can provide.
President Bush signed legislation raising the loan limits on reverse mortgages that are guaranteed by the federal government; such loans make up a vast majority of reverse mortgages being done today. These new rules have strengthened the federally insured reverse mortgage program. The law allows raising loan limits to $417,000 nationally, versus the prior limit, set on a county – by – county basis, ranging from $200,160 to $362,790.
The origination fees are now capped at 2% on the first $200,000 and 1% on any amount above that, with a limit/cap of $6000.00, which can amount to considerable savings. The prior cap was 2% of the total loan amount.
The new legislation also allows for a reverse mortgage to be used for home purchase. This can be especially attractive for seniors looking to downsize to smaller, more economical housing.
Data released by HUD shows that on a calendar year basis, the number of reverse mortgages closed in 2008 grew 6.4% to 115,176 loans. This shows the increased significance the reverse mortgage program is playing in today’s economic conditions.
Should credit unions be involved in the reverse mortgage market? By all means. The market is growing and will continue to grow as more and more baby boomers continue to retire. Another factor is the layoffs and downsizing that prevails in today’s marketplace. Why allow this business to go to commercial banks and independent loan brokers? This service should be made available for all senior members. It also shows that the credit union cares and understands the needs and wants of their senior members.
If you have any questions, please feel free to contact me at any time at 302.475.3260 or contact Jane Bailey at 302.322.9341.
Credit Line Management – The forgotten strategy!
By Bill Lehman, AVP Portfolio Consulting, CSCU
Since unveiling CSCU’s portfolio consultation services back in September 2006, I have had an opportunity to consult with over twenty different CSCU member credit unions. It has been a great opportunity for me to talk to them about specific acquisition, activation, usage, and retention strategies that they can implement to help improve portfolio performance and profitability.
More often than not, proper credit line management has been a strategy missing in the credit union’s arsenal, and therefore, a frequent topic of conversation in my consultations. Many of the credit unions that I have talked with do not have a credit line management strategy in place. And in fact, they rarely, if ever, reviewed their cardholders' limits to appropriately adjust their members' credit lines.
It is important to know that research shows that revolvers (those members that carry a balance on their card every month) will typically choose the card in their wallet with the lowest unpaid balance and the largest open-to-buy. Research further explains that cardholders typically seek additional credit elsewhere when they reach 35 to 40 percent of their credit limit. This is why regular credit line management that grants credit line increases to qualified cardholders is so important to the success of stimulating increased card volume and usage.
Also consider that by regularly managing your cardholders' credit lines, you can help reduce voluntary attrition in your portfolio. Wouldn’t you expect that your members are less inclined to call you and ask for the limit increase that they feel they deserve, than to easily accept the next generous offer they receive in their mailbox? Why not thank them for their outstanding cardholder behavior with your credit union and award them the increased credit line that they have earned, so that they don’t look for credit elsewhere?
Lastly, realize that by not regularly managing your cardholders' credit lines, there is a chance that members may not have adequate credit limits to take advantage of other usage strategies that you have implemented or are considering implementing. Without adequate credit lines in place, usage strategies like balance transfer promotions, statement checks, and letter checks are not going to be nearly as effective.
In my opinion, regular credit line management and review is a usage strategy that needs to be employed by many credit unions. I would encourage you to consider how long it has been since the last credit line increase program and think about if it is time to run another. Increased credit card usage depends on it!
Please feel free to call me at 1-888-930-2728 with any questions.
How Supervisors Promote a Faster Return to Work for Injured Employees
Seven traps to avoid after an injury report
When an employee is hurt at work, a supervisor’s response plays a key role in helping that employee return to work faster, according to a recent Liberty Mutual study.
“Supervisors who responded immediately to employees’ reports of work-related discomfort, and who problem-solved with these employees, reduced new disability claims by 47% and active lost-time claims by 18%,” says Fred Filiaggi, Liberty Mutual’s Midwest Loss Prevention Manager.
Your first duty as a supervisor is to report potential insurance claims quickly. If the employee is medically cleared for alternative duties, these should begin promptly and with proper supervision.
Communication with injured employees is vital throughout their medical leave, Filiaggi says. Injured employees are more likely to come back—and to do so more quickly—if they perceive that the credit union cares about when they return to work. This is especially true the longer an employee is off the job.
Supervisors should seek regular updates from the worker about his or her rehabilitation. In turn, the supervisor should also give the employee the latest news from the credit union. “Show them you care, encourage them, and tell them you look forward to their return to work,” Filiaggi says.
The cost of a negative attitude
Liberty Mutual’s research also suggests that negative supervisor attitudes can impede employees’ rehabilitation and return to work. It’s important for supervisors not to give the impression that they’re interfering with an employee’s medical treatment and recovery schedule.
Supervisors should avoid these common traps in a case of employee injury:
When an employee returns to work after an injury, whether full-time or in a modified capacity, meet privately with him or her to discuss expectations. Review any necessary workplace accommodations, along with any physician-ordered job restrictions.
The best way to manage workplace injuries is to prevent them, of course. But when injuries do happen, a compassionate and proactive response can reduce the amount of workers compensation claims and the credit union’s overall economic loss.
About the CUNA Mutual/Liberty Mutual workers compensation alliance
Liberty Mutual formed an alliance with CUNA Mutual Group in 2007 to provide workers compensation coverage to credit unions.
The alliance allows CUNA Mutual—as the marketplace leader in credit union protection and loss prevention—to enhance its comprehensive approach to helping protect credit unions. Liberty Mutual brought to the table the expertise and efficiency it has gained as the nation’s second largest workers compensation insurer.
If you have questions about worker’s compensation insurance, please contact Erik Vandermause at erik.vandermause@cunamtual.com, or 800-356-2644, Ext. 8120.
The ALM Strategic Advantage
Bruce Six, Senior Vice President/Asset & Liability Management
Mid-Atlantic Corporate Federal Credit Union
All credit unions recognize Asset Liability Management (ALM) as a regulatory mandate. But how many credit unions are using the results of their ALM models as a key management tool? There is no definitive answer to that question because it comes down to a matter of degree. Some credit unions model the balance sheet for the sole purpose of amassing sufficient paper to hand the regulator and garner that ever important check mark on the list of items the regulator requires.The most attention the reports get comes moments before the handoff to the regulator when management performs a vigorous dusting of the paper so it looks like it hasn’t been sitting on the shelf for months at a time.
Some credit unions have developed very active and robust ALM programs within the organization and place the highest importance on the preparation and resulting decisions that come out of their Asset Liability Committee (ALCO) meetings. These credit unions have allocated the time of the senior management and even board members to the process of evaluating the risk profile of the credit union and forecasting what impact decisions made now will have on the credit union in the future. The highest compliment an ALCO can receive is when the Board of Directors has so much confidence in the process that the committee allows the ALCO to make dividend rate decisions and only requires board notification before the rate is actually changed. Most credit unions fall somewhere between these two opposing utilizations of ALM.
If your credit union has not created a strong ALM program, now is the best time to start. Actually, anytime is a good time to start a strong ALM program because the benefits work in any economic and interest rate environment. The steps to creating a strong ALM management program start with education of both the staff and the Board of Directors. Training needs to start with the basics in the areas of the credit union modeling that can help quantify risk. This includes interest rate risk, liquidity risk and capital adequacy risk. Another part of the training process should include the role of the ALCO and where the ALCO will fit within the management hierarchy of the credit union. Finally, and this can run concurrent to the education process, an evaluation of the modeling capability of the credit union needs to be completed.
After you’ve completed these initial steps for enhancing your ALM process, it is time to drill down further into the actual mechanics of establishing an ALCO. At the same time, you’ll need to build up your ALM process so that the modeled results your committee receives are sufficient to make decisions.
Establishing or re-establishing your ALCO means designating who will be on the committee, and what their role will be. Creating a committee charter for the ALCO that will definitively identify the reason the committee exists; what powers and duties the committee will have; and who will be assigned to the committee will do this. The committee charter constitutes a board-approved document that solidifies the position the ALCO has within the credit union decision-making structure.
Enhancing the modeling capabilities of the credit union begins with a comprehensive listing of the requirements the ALCO needs in order to fulfill its role. Matching that list to what the existing model can produce identifies any shortcomings that need to be rectified. These shortcomings could be a result of a sub-par computer model or staff not having the training or ability to fully leverage the power the software possesses. If a new model is necessary, staff will need to determine whether they want an outside modeling service or a better in-house computer model.
Choosing a new model or enhancing the existing model needs to be utilized further. The ALCO must charge staff with creating an ALM policy listing the risk tolerances for changes to Net Interest Income (NII), Net Economic Value (NEV) and whatever else the committee deems necessary. After these tolerances are identified, the modeling assumptions need to be presented and evaluated in detail with the ALCO and possibly the Board of Directors. Since all Asset Liability models operate based on the data input and the assumptions, everyone involved needs to work to customize the modeling assumptions in order for the results to closely compare to the expected decision making process of the ALCO and/or the board.
Further steps needed to enhance the ALM process include periodic reviews of the modeling assumptions, validations of the model results, and ongoing education of the ALCO and the board.
Mid-Atlantic works hard to help our member credit unions grow and succeed. Assistance with ALM and ALCO are no exception. If your credit union is ready to take that next step regarding risk management and rate setting by using the ALM process, contact your Corporate Account Manager to see how Mid-Atlantic can help by calling (800) 622-7494.
Thank you for reading Service Issues!
Jane Bailey, Editor
Delaware Credit Union League
jane@dcul.org