Filed Under:Life Insurance, Life Products

Reinventing fraternals

Fraternal benefit societies originated in the late 1800s. That era lacked governmental safety nets and employer-provided insurance. Families of workers hurt or killed in mining, farming and factory accidents had nowhere to turn for financial support -- except to each other. And so, fraternals were born.

Today, Americans have access to government programs as well as employer-based or private insurance, such as workers compensation, health insurance and retirement plans. Does any American even need a fraternal benefit society today?

The fact is, America needs fraternals more than ever. Economic reality is tightening government safety nets. Life insurance ownership is sagging among the middle class. Costs and tight credit are pushing home ownership beyond the reach of many. Millions of Americans today are struggling with medical bills. Many, especially immigrants, struggle with financial literacy. Primary and secondary education is slipping away as costs spiral. Natural disasters strike regularly but unpredictably.

Americans must rely more on each other. Fraternals fill the gaps in the safety nets. They provide financial security for their individual members by offering them life insurance, annuities and a host of membership benefits, including financial literacy programs, health and wellness services, and college scholarships.

Because they are owned and governed by members, fraternals are built on the cooperative business model.
Tomorrow's fraternal benefits societies must combine their historic strengths with the willingness to adapt to an ever-changing financial environment. With a resourceful approach, fraternals can indeed help more members secure their personal financial security and make their organizations more relevant and vital to a new generation of consumers.

Measuring fraternals' impact
Fraternalism continues to pay off for members and for society, and the numbers prove it: fraternals provide more than $3.4 billion per year in direct and indirect economic support (charitable contributions, volunteerism and improved social capital), according to a 2010 study by the University of Maryland.

Another key attribute that fraternals possess is the trust of members. The banking crisis of 2008-2009 sent shock waves through the economy, not just because of financial problems, but because millions of Americans perceived their financial leaders as breaching trust. By contrast, fraternals retained a high level of confidence.

Today, the 70 fraternal benefit societies in the American Fraternal Alliance unite people with common bonds to advance shared values (charity, education, religion, patriotism). Fraternals insure 9 million members with $375 billion of life insurance in force. In 2010, fraternal life insurers paid $3.6 billion in life insurance benefits, $5.5 billion in annuity benefits and $476 million in accident and health benefits.

That's a good base of trust, and it's a good place for fraternal benefit societies to start their new life.

Looking to the future
While fraternals may seem old-fashioned, what they are able to accomplish is decidedly new age. Fraternals contribute to better economic outcomes such as higher incomes, increased personal satisfaction and lower incidence of social ills, such as criminal activity. Fraternals are a cost-effective, private-sector support system for economies and communities.

This backbone sustains the charitable and community-oriented activities of 9 million Americans. By multiplier effect, tens of millions of Americans get sustenance from fraternals. In the past, fraternals connected members to their communities through regular face-to-face meetings. While the need to connect is still just as important, the way people make and manage those connections has changed dramatically.

Younger Americans are more tuned in to connections based on shared interests, education, politics, identity and activity. I've dubbed this new trend Facebook fraternalism -- people joining together based on charitable, philanthropic or other activities. Twenty-something Americans might not be interested in meetings at a local fraternal lodge, but they'll pitch in at a food bank, soup kitchen or shelter. Fraternals' organizational resources -- often led by an agent in the local community -- can help maximize the contributions of these dedicated individuals.

Like so many other businesses, fraternals need to streamline operations and focus on core competencies. They must consider how to most efficiently allocate resources, including through options such as outsourcing and distribution partnerships.

A vitally important initiative for fraternals is widening distribution. Their life insurance and annuity products are attractive, but they need to reach a broader market to achieve critical mass. By offering products through independent insurance agents and brokers, fraternals can create new business channels. Fraternals need to write profitable new business to sustain themselves and their fraternal activities. Many a fraternal CEO has said, "No margin, no mission."

Like other industries, the fraternal business must optimize. A current consolidation cycle is driven by financial imperatives, a decline in traditional membership segments and shared visions among distinct fraternal societies.

What's in it for insurance producers? The common bonds of fraternal societies can open new marketing doors within communities. Independent agents who represent one or more societies can build their prospecting activity, tie in to new markets and gain new clients and sales.

Agents that distribute fraternal insurance don't just sell good-quality policies; they deliver a means for a consumer to serve the community. That's an attractive aspect of fraternalism that many consumers are looking for today.

Joseph Annotti is president and CEO of the American Fraternal Alliance ( Founded in 1886, the American Fraternal Alliance has 70 member societies and 32 state fraternal alliances. Fraternal benefit societies are membership groups that unite individuals with a common bond, provide life insurance and financial products, and make up one of America's largest volunteer networks.

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Nichole Morford

Nichole Morford
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