Fraternal Vision Report – Back to the Future…
February 5, 2013
Eleven years after its unveiling, the “Fraternal Vision” report still evokes some strong responses. While only a couple of individuals posted comments here on the blog, I received a number of emails from members who wholeheartedly supported bringing some of the report’s long-forgotten findings and recommendations to light. But that support was combined with warnings to proceed cautiously. Here are some excerpts from member responses to last week’s posting:
Onward, to the findings and recommendations…
- “I think you will find two sides: one where leaders want to change and can’t; and one where they do not want to change. The ones that do not want to change are the ones most likely already in trouble.”
- “Get ready for some heat.”
- “The Fraternal Vision Report was the catalyst that started our Board to change its bylaws; without it, we would not have changed.”
- “Officers and board members will not agree to needed reforms in their society because they want to be re-elected. Tragically, they will not seriously face reality. They love power and per diem and will not rock the boat, while membership losses continue and societies slowly bleed to death.”
- “Nice post. Be careful.”
The final section of the report focuses on “findings and recommendations.” Let’s see what the subcommittee felt were the most significant external forces affecting relevance and viability of the fraternal business model:
- Finding # 1 – The fraternal benefit system has not adapted well to economic, social, technological, and demographic changes in the 20th Century. Generally speaking, societies have not shifted their focus to keep pace with unmet member needs, nor have they adjusted particularly well to demographic changes impacting members and member candidates.
- Finding #2 – Insurance regulation has expanded over the course of the 20th Century such that it now governs activities and transactions of fraternal benefit societies that duplicate the traditional protection inherent in the non-distribution constraint of nonprofit organizations. Modern life insurance regulation creates regulatory burdens that stretch the limits of many fraternals to survive in today’s financial services marketplace.
– It is essential that fraternal benefit societies find ways to join their resources, through the NFCA (now the Alliance) or otherwise, to address common problems and threats to their common future. No single society has the human or financial capability to respond on its own to the external challenges it faces as a unique organization form seeking viability in the 21st Century.
What’s happened since then?
Insurance regulation hasn’t gotten any less complex, that’s for sure. If anything, after the financial services crisis of 2008, regulation of all financial services providers has become stricter, compliance more expensive, and penalties for failure to meet newly established standards more severe. Regulators in the U.S. and around the world are taking their responsibility to protect consumers from financially weak players VERY seriously – and that includes fraternals, too. In the meantime, many fraternals are finding themselves with fewer resources to allocate to this increasingly important function.
And the long-term low interest rate environment following the crash – and likely to continue for the foreseeable future – only adds to the urgency of fraternals leaders to address the major problems facing them in a prudent and strategic manner.
As a result, finding ways for fraternals to “join their resources” is not only a good idea, it’s imperative for the survival of some societies. And there have been some breakthroughs in this area. A handful of societies are participating in an asset management cooperative that is generating real cost savings. Nearly a dozen societies are utilizing the services of a fraternal-owned bank to reduce their commercial banking administrative costs and streamline their banking operations. Many societies are taking advantage of the Alliance’s new Compliance PLUS program to enhance their regulatory compliance capabilities and help control the costs.
And consolidation continues, with a handful of mergers each year. Unfortunately, many of these are prompted by a regulator’s bayonet. But last year’s Modern Woodmen of America/Equitable Reserve Association merger was a strategic partnership that was done for the benefit of the members while both societies were in a financially sound condition.
My take on all this…
The cooperative ventures and strategic consolidations are rays of hope. But, I’m concerned they won’t be enough to ensure the sustainability of some societies. And financial weakness in one link of the fraternal chain – one or more assessments, a society placed in receivership with the costs of that process borne by members – undermines the sustainability of the business model.
So, how come it’s so tough for organizations based on the cooperative business model to cooperate with each other? Is it as simple as what one member said to me in an email?:
“Fraternals do not work together because they are jealous of each other and are afraid to disclose their problems to others. Asking for help is a sign of weakness in the fraternal world. They are exposing themselves and telling others that they do not have the ability to compete in the business world.”
And if that’s the case, how do we overcome it? In addition to the “joining forces” programs mentioned above, there are untapped opportunities for real cooperative efforts out there that can make the fraternal model sustainable for generations to come:
- A common IT platform to manage the business of multiple societies;
- A shared set of member benefits that can enhance the value of membership in many different societies;
- A reinsurance buyers group to enhance coverage and reduce expenses;
- A multiple-employer 401(k) administration program to reduce administrative fees;
- A shared sales and service center;
- The consolidation of multiple societies assets to create a single insurer that can offer a common suite of products to the members and prospects of every participating society (the “20 front doors and one back room concept”);
- Utilizing a professional single meeting planning company to identify venues and negotiate hotel contracts for conventions and other events to obtain lower room rates and favorable terms.
I know many of you are thinking that these are pipedreams and can prepare a detailed list of reasons why they will never happen. But to me, these ideas – and courageous CEOs willing to make them a reality – are the difference between a “fatal” fraternal vision or one of sustainability and prosperity.
Tell me why I’m wrong (or right!) by posting a comment here or sending me a private email at email@example.com
: The authors of the Fraternal Vision Report look at the internal environment – “lodges and benefits and governance, oh my!”