THE UKRAINIAN NATIONAL ASSOCIATION FORUM

Survival strategies for the smaller fraternal benefit societies

This article is reprinted from the October 2001 issue of the Fraternal Observer with permission of the author. With the approach of the 35th UNA Convention, it is important that our delegates, members of the General Assembly and membership at large consider some of the problems discussed in this article.

- Martha Lysko, UNA national secretary

by Howard W. Heidorn Jr.

Is the end inevitable?

In his article in the June 2001 issue of the Fraternal Monitor, David Brummond, general counsel of the National Fraternal Congress of America (NFCA), suggests that fraternal benefit societies "are predominately 19th century institutions." In addition, he speculates that "there is a risk that the fraternal benefit system will become a relic of the past."

Are we nearing the inevitable end of the fraternal benefit system as we know it today? The answer is a resounding "Maybe." The costs of merely complying with all of the increased regulations could very well drive some of the very small societies right out of business.

This article does not present any quick-fix solutions to this survival dilemma. It does indicate that many of the decisions that need to be made to stay in business will be extremely difficult to make. However, assuming that a fraternal benefit society, especially a smaller society, sincerely believes it can survive in today's (and tomorrow's) economy, perhaps some of the following strategies might help it avoid becoming a relic of the past.

A few clarifications

A fraternal benefit society by definition is really involved in two businesses: the fraternal business that binds its membership together and for which it receives its favorable tax treatment, and the business of insurance. From a historical financial perspective, it has been the business of insurance that has allowed the fraternal business to operate.

Who are the smaller fraternal benefit societies? For purposes of this article, any society having less than $500 million in assets might be considered small - especially when considered in light of the recent proposed merger of the two largest fraternal benefit societies. However, some of the following strategies will apply more particularly to those fraternal benefit societies having less than $100 million in assets.

Now let's consider this "business" of insurance as it applies to fraternal benefit societies. Perhaps the following strategies will prove helpful to survival.

Understand the business of insurance

The senior officers of many fraternal benefit societies became senior officers through an election process. The members who politic the most are the ones elected. In a changing economic world, these senior officers will be expected to run both the fraternal aspects and the insurance aspects of the business. However, it takes a certain amount of specialized business savvy to run an insurance organization. If elected presidents, vice-presidents, secretaries, treasurers, and others do not possess this specialized business expertise, these officers should make sure they hire someone who does. And from a continuity perspective, it would make good sense not to change these hired people every time new officers are elected.

Consolidate or share computerized administration

In this rapidly moving economy, even the smallest fraternal benefit societies need to have computerized administration systems. These systems can generate billing notices, pay commissions, calculate cash values and reserves and manage policyholder relations. If the cost of obtaining a computerized administration system is too high, perhaps a smaller society or a group of smaller societies might consider seeking a single administrator (a third party administrator [TPA], or a larger fraternal) that would handle the computerized administration of their businesses. However, they should be prepared to pay a monthly fee for the administration of their business, and they should know that such monthly costs will most likely increase in the future.

Cut the dead weight

Assuming a fraternal benefit society has already acquired a more sophisticated computerized administration system, what is a major implication? These systems do much of the work that used to be done by certain old time employees. Thus, there may be at least some employees who do not have as much work to do as they did before computerization. However, because it considers itself a fraternal in all respects, a society might believe that firing a non- or under-performing employee is not a very "fraternal" thing to do. Because there are myriad other expenses over which a society has no control (for example, expenses associated with new regulations), it makes good business sense to exercise the society's rights in areas where it does have such control. The decisions are difficult, but they must be made. The society must address the problem of any staff members who are not performing up to expectations - and perhaps even fire them!

Try new marketing schemes

Among those schemes that have met with some success and that have reasonable implementation costs are direct mail marketing and marketing through a newspaper. These suggestions may be particularly applicable to the smallest of the fraternal benefit societies, since many of them do not have professional sales staffs.

Note that there is a certain target market that all societies currently own - their own members as of any point in time. It has been the author's experience that specifically directed mail marketing programs to existing members have produced response rates as high as 20 percent to 25 percent. Such rates are much higher than those generally experienced by commercial organizations. The trick, however, is to continuously develop new methods of approaching existing members through the mails - and to do so at a reasonable cost.

There is also at least one smaller fraternal benefit society that reaches its target market using inserts in newspapers. The insert is a glossy brochure describing the society and the product offered. In addition, it contains a table of premiums applicable to each issue age and each face amount offered. This brochure also contains an application to be returned to the society, but the product itself is a guaranteed issue product. Although response rates in this case more closely resemble those experienced by commercial insurance organizations' mass marketing efforts, this particular society does quite well with its approach!

Manage fraternal and other expenses

Costs of regulation are increasing. Several years ago, an audited financial report was not needed. Now one is required of all fraternal benefit societies by June 1, at costs that almost certainly range in excess of $6,000 per year. At the current regulatory pace, cash flow testing or some other form of asset adequacy analysis will need to be performed for all life and health insurance organizations within the next year or two. In addition, a multiple page report describing what the actuary did will also have to be prepared. Could costs related to the actuaryís activities be as low as the audit costs? Not likely!

Since regulatory costs are increasing, expenses in other areas will need to be better managed, or perhaps cut, in order for the smaller society to stay in business. Perhaps the society will decide that the costs of the fraternal side of the business will need to be decreased. Yet it is precisely the fraternal aspect of its business that distinguishes the fraternal benefit system from the commercial life and health insurance business!

Keep it simple

The "smallest" of the "smalls" should keep both their insurance product portfolios simple and also their asset portfolios simple. As the sizes of societies increase, so also can the complexity of their product offerings and their assets. However, it does not make economic sense to develop a complex insurance product, say a re-entry term product, for example, that is expected to be sold by the same lodge secretaries that have sold whole life-type products for the last 30 years. Similarly, it does not make economic sense to invest in the more esoteric assets (CMOs or other asset backed securities, for example) that might develop an extra 25 basis points of investment earnings unless these additional investment earnings more than offset the increased costs of asset management and administration, and any additional cash flow testing costs.

Merge

If all of the above suggestions seem unattainable, then it would be wise to seek a merger candidate (partner?) while the society still has sufficient surplus with which to bargain. A "fire sale" will not be as beneficial to a society's members as a sale based from strength. If the two largest fraternal benefit societies believe this strategy is necessary for their own survival, is it not also a viable alternative for many others?

Conclusion

For many of the smaller fraternal benefit societies, the decision to remain an independent viable society is not a decision that has been actively made in the past. However, if this smaller society is to remain viable in the future, it must proactively address its future.

Where will your society be four years from now?

Howard W. Heidorn Jr. is consulting actuary for SSCG, a firm that serves seven fraternal benefit socities.

Delegates and alternates to the 35th Regular Convention
of the Ukrainian National Association
 

Branch	Delegate	Alternate
5	Stephania Rudyk
7	Adolph Slovik	Christine Harasymchuk
8	Wolodymyr Kozicky	Helen Tymocz
10/166	Lubov Streletsky	Oksana Melnyk
13	Gerald Tysiak	Andrew Demczar
13	Nicholas Fil	John Suchowacki
15	Eugene Iwanciw
16/466	Ostap Wynnyk	Anna Krutyholowa
20/341	Roman Kuropas
22	Michael Kuropas
25	Oksana Trytjak	Chrystyna Ferencewycz
27/340	Nestor Olesnycky
37/286	Olga Oseredchuk	Pauline Balutianski
39	Ivan Hvozda	Mykola Duplak
42	Julian Kotlar	Barbara Tyzsbir
45	Hryhorij Dawyd
45	Ivan Skalchuk
47	Oksana Koziak	Anna Kedulych
49/489	Jane Yaremus
55	Mariana Cizdyn	Michael Smolak
57/264	Michael Sawkiw	Michael Komichak
59	Ihor Hayda	Bohdan Doboszak
63	Michael S. Turko	Michael Turko
66/58	Peter Leschyshyn	Walter Kowalewsky
70	Maria Haluszczak	Sofia Derzko
76	Roman Woronowycz	Eli Onyshkevych
76	Marusia Worobec
82/303	Olga Maruszcak
83	Pawlo Prinko	Lydia Melnyczuk
88	Anna Slobodian	Sofia Semanyshyn
88	Roman Hawryluk	Andrij Cade
94	Roma Dyhdalo
94	Vasyl Kolodchyn	Yarema Kozak
96	Yaroslawa Komichak	Raymond Komichak
102	Nicholas Bobeczko	Mary Bobeczko
112/1	Alice Olenchuk
116/9	Stephan Shilkevich
120	Eli Matiash	Mark Szedny
125/17	Gloria Paschen
127	Yuri Darmograj	Paul Bandriwsky
130	George Yurkiw	Alex Redko
131/239	Lew Bodnar
133/86	Michael Bohdan
134/168	Christine Kozak
137/288	Stephen Kolodrub	Walter Kopchuk
139/147	Petro Pytel
146	Gregory Korbiak	Eugene Repeta
155	Maria Zaviysky	Olha Ilnicki
155	Nadia Salabaj	Ihor Kohut
161	Michael Hrycyk	Jeffrey Markvan
161	Nicholas Cheddar	Steve Kowal
161	Tim Ganter	Leonard Sadowy
164/333	Tymko Butrej
170	Volodymyr Bilyk	Daria Malinowsky
171	Daria Semegen	Steven Woch
171	Genevive Kufta	Wolodar Lysko
172	Longin Staruch	Ivan Pelech
172	Teofil Staruch	Michael Halibej
173	Irene Serba	Eugene Serba
174	Zenon Wasylkewycz	Vera Krywyj
175	Jaroslaw Baziuk	Alexandra Lawrin
177/325	John Laba	Barbara Chupa
180	Natalie Miahky	Stephen Miahky
182/153	Gregory Klymenko
184	Olympia Rohowsky	Jarema Bachynsky
194	Oksana Lopatynsky	Alexandra Juzeniw
206	Irene Sarachmon	George Trenkler
214/98	Roman Pyndus	Olga Dudish
216	Bohdan Odezynsky	George Bohachevsky
217	Oksana Markus
220	Irene Nowak	Luba Nowak
221	Helen Karachevsky	Wasyl Kuszynski
222/233	Luba Mudri
230	Annabelle Borovitsky	Kathy Martynyshyn
230	Estelle Woloshyn	Eugene Woloshyn
231	Theodozia Pastuzsek	Alexander Pastuzsek
234	Edward Melnyczuk	Pawlo Bodnarenko
234	Maria Oscislawski	Jaroslaw Sosiak
238	Stephanie Majkut	Larissa Dijak
240	Ewhen Baczynsky	Petro Dmytryk
240	Vasyl Lisczenesky	Bohdan Semkiw
242	Andrea Chabon
242	Joe Chabon
245	Mychajlo Martynenko	Iwan Boychuk
253/56	Peter Hawrylciw
254/381	Basil Romanyshyn
259	Stephany O. Pitula	Julie Guglik
266	Myroslaw Krywulych	Walter Krywulych
267/439	Gloria Tolopka	Wolodymyr Zacerkowny
269	Paul Fuga	Valia Kaploun
271/21	Michael Felenchak
277	Myron Kuzio	Myron Kolinsky
282	Mary Bolosky	Henry Bolosky
283/38	Gregory Hawryshkiw	Edward Gusylak
285/343	Alexander Skibicky	Ana Andrews
287/290	Neonila Sochan	Michael Choma
292	Irene Pryjma	George Rub
293/486	John Choma
304	Roman Konotopsky	Mary Hnatyk
305	Marguerite Hentosh	Joe Hentosh
307	Vasyl Stefantsiw	Dmytro Melnyk
316	John Galuga	Mary Sweryda
320/226	Olha Sushko
327/62	George Soltys
338/481	Olga Pishko
339/163	Michael Luciw	Teodor Duda
345/382	Michael Karkoc	Julia Cresina
349/356	Michael Zacharko	Oleksa Prodywus
353/26	Osyp Rinnyk
358	Zenon Holubec	Katherine Szmagala
360	Emil Bandriwsky
360	Osyp Hawryluk
361/445	Olga Liteplo	Helen Petryk
362/53	Yaroslaw Kortschmaryk
364/369	Wlademer Wladyka
367/322	Christine Dziuba	Andrew Keybida
368/377	John Kocur	John Gawaluch
379	Myron Luszczak	Roman Golash
385/28	Myron Kramarczuk
387/372	Irene Olijnyk	Sofia Lonyshyn
388/498	Lubov Maryniuk
397	Ulana Prociuk	Michael Chomyn
399	Bohdan Kukuruza	John Losko
401	Stephan Chorney	Odarka Stasula
402	Anna Burij	Omelan Drohobycky
409	Genet Boland
409	Irene Palmer
412/417	Ihor Kobil
414/350	Gloria Horbaty
423/176	Lesia Kuropas
427/48	Ben Dolizny
432	Vera Plawuszchak	Roman Plawuszchak
434	Alexandra Dolnycky	Marta Bilyk
434	Maria Dolnycky	Roma O. Mandryk
450/291	Motria Milanytch
452	Natalia Shuya	Vasyl Kushnir
458/461	Petro Tymkiw	Janina Groch
465	Eugene Diaczyszyn	Eugene Kicak
472/156	Ivanna Gorchynsky
473/888	Sergei Djoula
484/312	Natalia Cholawka	Nettie Sherbie
496	Anna Partyka	Anna Stavkova
496	Myron Pylypiak	Iryna Brudna

UNA executive committee holds special pre-convention meeting

by Martha Lysko
UNA National Secretary

PARSIPPANY, N.J. - The Executive Committee of the Ukrainian National Association, at a special meeting on Monday, April 8, called the convention committees and approved the delegates to the 35th UNA Convention.

In accordance with the UNA By-Laws, the Executive Committee approved the delegates to the next convention of the Ukrainian National Association, which will be held in Chicago on May 24-28. It also appointed the Credentials Committee, By-Laws Committee and Financial Committee. These committees are named by the executives from among the elected delegates to serve during the convention.

The committees named for the 35th UNA Convention are:

o By-Laws Committee - Joe Chabon (Branch 242), Stephen Czorney (401), Gloria Horbaty (414), Michael Karkoc (345) and Michael Kuropas (22);

o Verifications Committee - Tymko Butrej (164), Pete Hawrylciw (253), Gloria Horbaty (414), Myron Kuzio (277), Olga Oseredchuk (37) and George Yurkiw, (130);

o Financial Committee - John Kocur (368), Wolodymyr Kozicky (8), Vasyl Liscenesky (240), Olga Maruschak (82) and Gloria Paschen (125).

Copyright © The Ukrainian Weekly, April 21, 2002, No. 16, Vol. LXX

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