Why it’s better to be the sausage maker than the ingredients
You’ve all heard the old saying about legislation and sausage – you know, that you don’t want see either one being made. But when you are an organization whose members are significantly impacted by the decisions of public policymakers – be it on tax laws or insurance rules – you just can’t afford to sit on the sidelines and ignore the sausage-making process. If you do, you run the risk of being tossed into the grinder.
When it comes to public policy issues, fraternals have a history of keeping their heads down and hoping no one notices them. And back in the day when we were sleepy little “pass the hat” organizations with more members than we knew what to do with, that approach worked just fine.
But those days are over.
We’re not the same type of organizations that existed when we were founded. The external environment has changed and so has the self-help, mutual aid concept. The need for non-profit, member-owned financial services cooperatives dedicated to improving the lives of our members and enhancing the quality of life in our communities (and, really, isn’t that what we are?) is greater than ever. Our challenge is to refresh the fraternal brand identity so that it becomes as well-known, relevant, and respected by consumers and public policymakers in 2010 as it was in 1910.
Can it be done? Certainly! Successful societies are offering competitive financial services products marketed by a professional sales force and combining that with a smorgasbord of benefits that make membership much more worthwhile than merely purchasing an insurance policy or an annuity. They make members aware of the fact that they are part of an organization that is dedicated to providing members the tools they need to protect their families’ financial security. And they top this off by helping their members plow the profits from the sale of financial services products back into their own communities through a variety of service programs and activities.
Bratwurst, Kielbasa, or Chorizo?
So what’s that got to do with sausage making?
Let me expand a little on the point I made about today’s fraternals being different than those of a century ago. I recently purchased an annuity from an NFCA member society. I’ll be honest with you; the fraternal annuity looks, feels, and smells a lot like my other annuities issued by commercial insurers. And I had to ask myself, why should my financial security be less protected because the fraternal organization from whom I purchased the annuity is regulated differently than the commercial insurers that provide the same product?
The fact is, it shouldn’t. It gets back to the theory of “treating like like like” that I discussed several postings ago. Fraternals are offering more sophisticated products than they were 100 years ago – products that are similar, if not identical, to those offered by our commercial counterparts. Yes, we are different than commercial insurers in that we use our non-profit status to fund a wide variety of membership benefits and community services, and we organize and motivate our members to participate in volunteer activities. But non-profit doesn’t mean “no profit.” Without the profit from our financial services business we cannot fund the fraternal activities so important to the communities we serve. Money fuels the mission.
And if we’re selling big boy and big girl products, then we have to expect – in fact, we should demand – to be regulated like big boys and girls. The contention that we should be regulated differently than commercial life insurers no longer holds water. Wishing that it did won’t make it so. And trying to roll back the clock on regulation in the current environment is akin to tilting at windmills. The biggest risk to the fraternal charter is not the imminent repeal of our tax-exempt status – that’s a political battle we know we can win. The biggest threat to our charter is the solvency of the system and the inability of societies to reinvent themselves as relevant financial services providers and community service organizers.
Imagine a scenario where one or more societies had to assess members to shore up surplus or, even worse, become insolvent. We all know that such a development is not that far-fetched. It would be a devastating blow to the entire system because public policymakers would treat fraternals in the same manner that they treated savings and loans just a few years ago – systemically rather than individually. So while your society may be fiscally strong, your colleague’s shaky financial condition could be just as dangerous to the long-term viability of your organization. Solvency is not his problem or her problem, it’s OUR problem – and we need to deal with it before it’s too late.
That’s why NFCA has been proactive about working with public policymakers in key states to enact fair and reasonable solvency regulation – most notably the application of RBC standards to fraternals. Most recently, a delegation of NFCA’s Ohio-domiciled members including Mary Ann Johanek, FCSLA; Tony Martella, UTUIA; Joseph Hoffman, UCT; and Albert Amigoni, AMLA, met with representatives from the Ohio Department of Insurance (ODI) to discuss a variety of regulatory reforms – from RBC to agent licensing – that would affect fraternals doing business in the state.
The meeting was productive – lots of give and take. Both sides left with a much better understanding of each other’s concerns and objectives. And both sides agreed to re-think their positions on several of the proposed reforms. We’ll come together again in the next month or so to hash out the details of legislative language that hopefully both NFCA and ODI can support when it’s introduced in the 2011 legislative session. This was an important step for fraternals because we initiated this meeting. This puts us in the position of setting the terms of the debate – not having them dictated to us.
Is there a risk to this more aggressive strategy? Sure there is. You get too close to the grinder and you could get hurt. But there is a bigger risk to ignoring the problem: the risk of being treated systemically and erased from the map by regulators responding to the actions of a few poorly managed organizations. The NFCA Board has taken a leadership role – a courageous one, if you ask me – and has made it clear that the best way to protect, preserve, and enhance the fraternal charter is to be a sausage maker, not an ingredient.