Credit Union Times: Safe Deposit Boxes May Unlock Fee Income

November 18, 2015 

About half of safe deposit box holders mistakenly think financial institutions or the government will reimburse them if their boxes are damaged, according to a poll by SurveyUSA. That’s prompted one Elgin, Ill.-based startup to launch a product that could also generate novel new fee income for credit unions.

The company, called Safe Deposit Box Insurance Coverage, LLC, has devised and patented insurance for safe deposit boxes. CEO Jerry Pluard said it’s an answer to an often overlooked problem: The NCUSIF and the FDIC don’t actually insure the metal containers many people use to house birth certificates, family heirlooms, important records and other valuables.

“They never have and they never will, because they don’t know what’s in it,” he said.

Pluard’s company launched its product in the fourth quarter of 2013 and partners with credit unions and banks to offer up to $500,000 of coverage per box. The company doesn’t require box holders to divulge what they’re storing.

“Anything other than illegal contraband is fully insurable,” he said.

Coverage starts at $5,000 for a $25 premium. The average premium is about $80, which is enough to cover about $25,000 to $30,000 of property, Pluard said.

Homeowners’ policies often do cover safe deposit boxes, Pluard noted, but standard policies typically only pay $1,500, may require appraisals and disclosures about what’s in the box, may not cover water damage or papers and usually have deductibles, he said.

Direct coverage, on the other hand, presents a new way for credit unions to monetize their safe deposit box offerings. They get a 10% to 20% cut – around $10 per box on a policy with an $80 premium – when members buy through the financial institution. In some cases, SBDIC pays credit unions a flat fee for every policy members buy, Pluard added.

AXA Insurance underwrites the policies, which Pluard said have renewal rates of around 90%.

“It becomes a nice little annuity stream,” he said.

Pluard said the company just started marketing to credit unions, and two credit unions have signed up so far: the Muncie, Ind.-based PrimeTrust Federal Credit Union, which has $149 million in assets and 17,500 members, and the San Jose, Calif.-based Meriwest Credit Union, which has $1.1 billion in assets and 70,800 members. Including banks, however, the company has insured at least 10,000 boxes, he said. The company estimates the nation’s credit unions hold four to five million safe deposit boxes.

Damage to safe deposit boxes does happen.

“In the last 40 months there’s been over 50,000 boxes impacted by some form of natural disaster, fire, flood, or a burglary/robbery,” Pluard said.

Based on what customers typically insure their boxes for, he estimated more than a billion dollars of property was in those 50,000 boxes.

However, the chances of damage do appear small: Even if all 50,000 of those boxes belonged to credit unions, they would represent just 1% to 1.25% of all the boxes at credit unions.

But the damage isn’t just physical – it can also be reputational, Pluard noted.

“The scenario and the narrative is always the same. People are very upset because they didn’t know they weren’t insured, and the bank and the credit union comes in and says, ‘Come and get your stuff; we’ve got to empty it out, we’ve got to repair the building and do whatever we need to do.’ They’re not responsible for the damage,” he explained. “This is some of the most precious property, whether it’s emotionally important or economically valuable property that consumers have.”

He added, “If you destroy the trust because they didn’t feel they were adequately informed that they needed to get insurance or consider insurance, that’s a very difficult thing to overcome from a customer standpoint.”

Article found here.