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Monetize your insurance program

By Kimberly Aggio, CAIB  

Not-for-profit associations are in business for the greater good of their members, as they provide resources, support, education and a common community.

While membership dues continue to be the predominant source of revenue for many associations, there are alternative strategies that can be engaged to generate additional income.

Insurance affinity programs are an excellent vehicle to increase membership participation and create a consistent non-dues revenue stream — moreover they provide significant value and savings to the members. Insurance programs range from home, automobile, commercial, life and extended health benefits to name a few.

COMMON GROUND
Looking at a not-for-profit association from a high-level perspective, members share similar profile traits. Commonalities include occupation, education, skills, general interests and
lifestyle, etc.

These common traits often mean members have a similar need when it comes to insurance. Whether they require office insurance, professional liability or maybe directors and officer’s liability — they fit within a shared profile which leads to mass purchasing power.

This group purchasing potential can be leveraged by the association to significantly enhance non-dues revenue, and adds exceptional value to members, which leads to increased membership counts and consistent retention of existing members.

REVENUE STREAM
An association-sponsored insurance program can provide multiple sources of revenue for a not-for-profit association when the terms are properly negotiated. Common insurance program revenues can include administration service allowances, marketing allowances and contingent profit commissions.

In all instances, proper agreements must be in place and the funds must flow through licensed intermediaries and/or program managers.
Administration Service Allowance (ASA) — Insurers recognize that without the strong support of the association, a program will not be successful. An allowance is paid to the association for their efforts in promoting the program to their members and to cover the costs associated with time and resources invested by association employees. For instance, email blasts, mail inserts, social media posts or hosting a table at the AGM.

ASAs are generally calculated as a percentage of the gross written premium (GWP) and issued on a quarterly basis. The value of the ASA is dependent on the line of insurance being written. While remuneration may vary, generally speaking, the ASA falls within one to three per cent of the GWP.
To put that into perspective, if a member purchases their home and automobile insurance through the association’s sponsored program, and their combined annual premium for the house and cars is $3,500, the association will earn $35. Multiply that by thousands of members and it starts to add up quickly.

Marketing Allowance — Associations are in constant communication with their membership, either as a source of industry news, educational opportunities, community gatherings or other pertinent member support. Insurers recognize that every time there is communication between the association and the members, there is a prime opportunity to promote the program. Experienced group insurance carriers will provide an annual marketing allowance to the association in return for continued marketing support. Marketing allowances will be largely predicated by the size of the membership.

Contingent Profit Commission (CPC) — An association has the potential to share in the underwriting profit with an insurance carrier. Sharing the profitability of underwriting results is known as CPC. Simply put, a CPC is calculated annually using premiums paid, less claims/reserves and policy expenses incurred over the term of the policy. The association has the ability to earn additional revenues up to 30 per cent of the underwriting profit.

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PUTTING IT INTO MOTION
There is money to be made but knowing where to start is half the battle.
Scenario #1: The association has one or more sponsored insurance programs in place.

The logical starting point is to pull out the contracts and ask the following questions: when is it up for renewal? Is there a clause which allows the terms to be revisited? Who owns all the renewal information and data? Am I getting regular reports about policies bound and claims made? Is the association earning the full income that it’s entitled to? Why not? Who is?
These questions are just the starting point when it comes to fully uncovering the full financial potential of an association’s insurance program. If the waters are too muddy, partnering with an independent insurance consultant will clear things up and point you back in the right direction.

Scenario #2: The association has no sponsored insurance programs in place, or would like to expand the suite of products offered to the members.
For example, an association may all have the collective need for office contents insurance and commercial general liability and other types of affinity insurance products. Converting that need into a revenue stream may require sourcing out an experienced and independent insurance consulting firm that will draft/review contracts, negotiate compensation, oversee the implementation and launch of the program while ensuring the association retains full disclosure, ownership and control of the data.

WHY IS DISCLOSURE, OWNERSHIP AND CONTROL (DOC PRINCIPAL ™) SO IMPORTANT?
Disclosure, Ownership and Control (DOC™)
Why is disclosure, ownership and control so important?
Disclosure — There is a contractual obligation where the carrier provides all proper data to the association to:
• Identify claim trends.
• Assist with rate negotiations.
• Data management for marketing initiatives.
Data and information = Power.
Ownership — A group insurance program and its members are a valuable asset. By taking ownership of the program an association has:
• Renewal ownership of records.
• Rights to membership base.
• Ownership of the renewal asset rather than the insurer or broker.
Control — Partnering with key insurers for greater accountability.
• Choosing the right partner.
• Access to information and data.
• Simplifies changing providers (if necessary).

CASE STUDY
The following is only an illustration based on a national affinity insurance program. These figures include new and renewal policies.
• Professional association.
• 6,000 members.
• Commercial office insurance program.
• Average policy premium is $1,000.

The higher the enthusiasm, support and engagement the association has with its members, the higher the participation rate that can be achieved. Participation equals revenue for the association.

This goes back to the relationship the association has with its members. Members trust the “brand” that is the association and believe that information which is passed on to them is well researched, properly vetted and ultimately in their best interest.

  Year One (8% Penetration) Year Two (15% Penetration) Year Three (20% Penetration) Year Five (25% Penetration)
Gross Written Premium $480,000 $900,000 $1,200,000 $1,500,000
Association Revenue Streams        
•    Administrative Support Allowance (2%)   $9,600 $18,000 $24,000 $30,000
•    Marketing Allowance $10,000 $10,000 $10,000 $10,000
•    Contingent Profit Commission* $15,000 $29,000 $42,000 $45,000
Potential Income for Association $34,600 $57,000 $76,000 $85,000

*Contingent Profit Commissions are based on the loss experience of the policy year and could be NIL in the event of significant losses.

INSURANCE AS A MEMBERSHIP ACQUISITION AND RETENTION TOOL
The purchase of insurance as part of a group is highly sought after due to the availability of competitive rates and customized coverage. Policyholders know they have an added advantage because they belong to a group and therefore don’t feel the need to shop around every renewal. It goes back to the trust they have in their association. They pay their dues and in return the association adheres to their due diligence process and ensures the members are properly protected.

Insurance is a compulsory product for both personal and professional assets. By taking the guess work out of the equation for members, associations reinforce their value to their constituents.

The premium margin between group and non-group insurance is significant — so significant, in fact, that the differential not only covers the cost of the association membership fee, but then some!

Leveraging the cost savings on insurance premiums is an exceptional tool many not-for-profit associations use to sell memberships, add value and retain their members in addition to significantly enhancing their revenue stream.

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