SNC Spotlight

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6 Often-Overlooked Reasons a Tracked CPI Program Is Better

“State National certainly saves us time and money, because of the tracking they do on the insurance. That’s why we use them.”

~ Alan Meyer, President & CEO, 1st MidAmerica CU

 

AdobeStock_73551073Here at State National we are, naturally, advocates of the benefits of collateral protection insurance (CPI) for lenders, including comprehensive insurance tracking. After all, it’s what we’ve built our business around for almost 50 years, and we’ve seen it successfully manage risk for thousands of our clients.

 

But we also know that deciding how to safeguard your institution’s loan portfolio can seem like a complicated decision. In the midst of all the other duties and responsibilities of running your business, it can be tempting to go with the option that seems easiest on the surface. However, as with most things in life, there’s a lot more underneath it all than meets the eye.

 

There are a lot of factors in favor of a tracked CPI program that aren’t immediately obvious and can be all-too-easily overlooked — until a lender who chooses another kind of portfolio protection discovers the unintended (and potentially unpleasant and expensive) consequences that can often happen with self-insurance or blanket coverage and a lack of borrower insurance tracking.

Icon_Magnifying-Glass“We’ve got to know what we have in our portfolio. We can’t just pray they have insurance, we have to take the responsibility to figure out what we’ve got. Now (with State National) we can worry about doing loans, doing the things we’re good at, versus the stuff that’s not fun on this end. That has been a huge benefit for us. I just don’t think anybody else out there can compete with what State National has as far as the product, the technology and innovation, and how many things are automated.”

~ Cory Rupp, Affinity Plus CU

 

View the Affinity Plus Case Study

 

Why a Tracked Portfolio Protection Program Is Better for Lenders

 

Lack of borrower insurance tracking has some side effects that aren’t always obvious at first glance. Here are some of the risks of a non-tracked program:

 

1. Increase in uninsured collateral and risk to the lender

Tracked programs encourage non-compliant borrowers to obtain their own insurance and the right kind of insurance, and to keep it in force. Considering that an average of 1 in 8 drivers in the U.S. is uninsured — reaching as high as 1 in 4 in some states — programs that don’t have a tracking component often find that the number of uninsured borrowers within their portfolio increases because there is no mechanism to resolve deficiencies.

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“State National has saved us — literally — thousands of dollars. State National does a better job of identifying uninsured loans and a better job of working with our members.”

~ Bob Steensma, CEO, Five Star CU

 

2. Loss of claim dollars from standard insurance carriers

Without a tracked program, there is nothing to ensure a borrower will add your institution as lienholder and loss payee — which means that if a covered loss is incurred, the claim payment goes directly to the borrower. Unfortunately, in some cases, the borrower pockets the money instead of repairing the collateral, and there is no protection for the lender when this occurs. Tracking lienholder status is essential to ensure that if you need to repossess the vehicle, you will be compensated for the damaged collateral.

Avoid loss of claim dollars from standard insurance carriers

3. Increased charge-offs

Without the claims benefits a tracked program provides, your institution will likely see an increase in charge-offs. Our tracked programs reduce charge-offs by as much as 1/3, which means lenders can see an increase of as much as 50% in charge-offs when they move from a tracked program to another form of insurance.

 

4. Negative impact on overall borrower population

By tracking insurance on your entire portfolio and placing a policy only on those who do not have acceptable insurance, you are benefiting all of your borrowers as a whole. The average penetration rate (percentage of policies placed relative to the entire portfolio) of a tracked program is very low — meaning that the vast majority of your borrowers who are compliant and keep proper insurance coverage in place are not affected by these costs. And not only does reducing charge-offs and keeping your portfolio’s uninsured rates low benefit your borrowers as a group, it also helps your lending rates stay more competitive because your institution does not need to cover these charge-off costs (or premium costs for a blanket policy).

 

Avoid Negative Impact to Your Borrowers

5. No protection of uninsurable borrowers

In some cases, borrowers are unable to obtain their own insurance due to poor driving history or other circumstances. A tracked program offers the ability (at the financial institution’s discretion) for physical damage coverage to be extended to these borrowers. That way, they can have the vehicle repaired and can continue driving it, enabling them to keep working and making their loan payments.

 

6. Loss of an early indicator of future delinquencies

Throughout our history we have seen that when a borrower drops insurance coverage, it can be a red flag indicating possible future delinquencies. Our tracked program and the extensive reporting it provides allows your collections department to be aware of potential future repayment issues. That way, they can get ahead of these situations proactively and work with the borrower to find ways to keep payments current. Early identification and action also reduce the risk posed by the diminishing value of the collateral, because early detection helps identify vehicles that need to be repossessed while the collateral still holds value, as opposed to later on when that value could drop significantly.

 

“In general, cost is the number one factor driving financial institutions to switch from blanket insurance to CPI. In addition to either passing costs through to borrowers or absorbing them, many institutions find they must raise rates regardless of claims, making them less competitive in the long run.”

~ Loren Shelton, Vice President of Insurance Solutions, State National Companies

 

“State National helps protect our portfolio, and at the end of the day, that helps our profitability.”

~ Mark Fessler, CEO, Pronto Finance

 

The Difference Between Self-Insurance, Blanket Coverage & CPI

 

 

More On CPI, Blanket, and Self-Insurance

 

 

State National
State National
As the leading insurance carrier in the United States specializing in CPI, State National offers single-source solutions for credit unions, banks, finance companies, and specialty lenders of all sizes. Our services are cost-effective and tailor-made to safeguard assets against uninsured collateral losses.

Related Posts

The Difference Is in the Details: Secure Texting

State National’s Partnership With Solutions by Text Is a Secure Way To Reduce Borrower Noise    When was the last time you wrote or received an office memo? Or had stamps handy to mail a letter? Have you dialed the operator to make a phone call lately? Or eavesdropped on a party line? Some of you may have never experienced these “old school” methods of communication — and although each of these had their charms (eavesdropping on your neighbors over a party line was sometimes just as entertaining as watching drama unfold on General Hospital!) you should probably consider yourself lucky that those days are mostly behind us. Communication has evolved to become faster, easier, and far more convenient over the years, and here at State National we are no stranger to the incredible efficiencies technology has gifted us.     Whether business or personal, emails and texting have drastically altered how we connect with each other and share information. 89% of adults check emails daily and 98% of all text messages are read within three minutes! (When was the last time you checked yours?) Both are instant and can be read and responded to at the convenience of the recipient as opposed to interrupting them with a phone call, which many people report causes them a certain amount of anxiety nowadays. Both email and texting is where it’s at these days, and each have their particular strengths. While emails can provide a little more space to respond at leisure, texts create a sense of urgency. Receiving a communication from another channel also helps reassure borrowers of the authenticity and validity of the message by adding another touchpoint communicating what is needed.   Adding Email Notifications In 2016, State National implemented email notifications to borrowers as part of the notice cycle. This provided a quick and efficient way for borrowers to respond with their insurance information through the MyLoanInsurance.com website or by replying to the email with their insurance information. On average, we saw 23% of borrowers log into MyLoanInsurance.com from the email. Considering that 2% to 5% is considered a good click-through rate for email, this result was an immediate success.   Next, Text Messages Then, in 2019, State National added text messaging to the notice cadence to further increase ease and convenience for borrowers while also instilling an urgency to submit their insurance. Like our email notifications, these text messages have a secure link into the MyLoanInsurance.com website a recipient can effortlessly access from their smartphone — which, let’s be honest, is always inches from their fingertips at any given moment. So far, we are seeing an average of 18% of borrowers log into MyLoanInsurance.com from a text they’ve received and we expect that number to continue to climb. Overall, of those who log into MyLoanInsurance.com from the email or text, over 70% are submitting their insurance!     But Is it Secure? Of course, scams and phishing are unfortunately a reality and very prevalent in the world of emails and texting and, rightly so, have everyone on high alert. Let’s face it, receiving a text asking you to provide your insurance information may cause some hesitation, but then when you receive an email a few days later, you start to think it may be legit. Then you receive the notice in the mail. OK, the recipient thinks, now I know this is my financial institution trying to get ahold of me to get this information. We want your borrowers to feel at ease that their information is protected. That’s why we include your financial institution’s logos on the emails and on the secure MyLoanInsurance.com website. If you’re a client of State National or thinking of becoming one, putting the MyLoanInsurance.com website on your loan documents or even on your website can help reinforce the authenticity with your borrowers.   The Proof Is in the Results So how does all this translate to your CPI program? Well, we have found that clients who utilize our email and texting programs are experiencing an average penetration that is 34% less than before they added these enhancements to their program. In addition, the "flat cancel" rate (the percentage of certificate placements resulting in a full refund) has decreased as much as 11%. That means fewer unnecessary certificates placed and refunds processed — which translates to less work for your staff.   The Difference Is in the Details State National’s texting and email programs are completely free of charge and State National does all the heavy lifting for you. You simply provide us the email addresses and phone numbers associated with the loans and we’ll take it from there — only reaching out to borrowers we haven’t yet received insurance information from. Should one of your borrowers no longer want texts, they can easily reply STOP and they’ll immediately be opted out, with their opt-out immediately reported back to your financial institution. We’ve worked diligently with outside legal counsel and partnered with Solutions by Text, a compliance-first provider of enterprise texting solutions with a proven track record with the FCC, TCPA, FDCPA, CFPB, CTIA, and MMA to ensure that our program is fully compliant. And since there is no advertising of a product or service, our emails are exempt from the CAN-SPAM Act. We continue to closely monitor any and all regulations surrounding these programs so you can keep peace of mind.   See what our partner Solutions by Text has to say about financial services users and texting!   There’s no doubt that the borrowers we serve are enjoying the convenience — and responding to these more modern ways of both receiving and sharing information. Who knows what the future holds for even better communication techniques? Whatever it is, you can count on State National to be ahead of the pack in offering it to our clients!

How to Explain CPI to a Borrower, Part 2: Simple Answers to Common Borrower Questions

CPI expert and Sr. Client Executive Kathy St. Clair shares her insights on how to educate borrowers about CPI and what to say if a borrower has questions about a CPI certificate placed on their loan. In Part 1, Equipping Your Staff, she shared the value of informing borrowers proactively and the multitude of resources and support State National has available to assist you. If you do not know what CPI is, we recommend first reading What Is Collateral Protection Insurance (CPI)?   Borrower Questions Covered in This Article Will I receive a refund once I show proof of insurance? I submitted my insurance, but have not received a refund Can I keep CPI as my only car insurance if I want to? How do I rectify my insurance status? Can this insurance be refunded? While you can redirect a borrower to State National at any time to be helped by one of our friendly, highly trained team members, we want to share the answers to some common questions a borrower may ask so you and your staff feel prepared to answer anything.   Borrower Questions: "Will I receive a CPI refund once I show proof of insurance?" "If I go out and get insurance, can I be refunded for what I have paid for CPI so far?" "Will I still have to pay a premium on my loan each month once I show proof of insurance?" Once State National receives proof of insurance, a refund is quickly processed and sent back to your financial institution. If the borrower had adequate insurance for the time period in question, a full refund will be issued. There may be a charge for any verified lapses in coverage. How quickly we can issue a refund will depend on the agreed-upon process, such as ACH or manual check. The refund is then posted to the borrower’s loan. In many cases, this can be done through an automated process, eliminating any manual administration for your staff. Along with quickly processing a refund, we send a notice to the borrower to let them know that their refund was processed.       "I submitted my insurance — why haven’t I received a refund?" or "Why am I still receiving notices?" This is where InsurTrak can once again come to your aid. If InsurTrak indicates that we have sent a borrower an impairment notice, you can let them know that we did receive their insurance but that the information they sent us was not complete. Through our tracking, we are making sure the borrower provides full-coverage insurance, both comprehensive and collision, with you listed as lienholder. Making the borrower aware of this can help them understand what additional information they need to submit for quick rectification.   "Is CPI considered insurance? I may want to keep CPI because it is cheaper and more convenient than my previous insurance." "Can I keep CPI as my only car insurance if I want to?" Some of our CPI partners have shared that borrowers occasionally ask about keeping their CPI insurance instead of purchasing their own auto insurance. A borrower should understand that CPI is not an equal alternative to car insurance they can buy on their own. By educating a borrower on what CPI is, you can deter them from keeping CPI. CPI is meant to cover only the cost financed by you as a lender — it is intended to protect your loan portfolio, not the borrower. While CPI provides comprehensive and collision coverage on the automobile, it does not cover the driver. CPI will not assist a borrower in covering any damages to another individual’s property. Most states also require drivers to carry liability insurance in case an accident occurs and there is another party or property damage involved.   Not realizing the specifics of their insurance, a borrower with CPI coverage will sometimes return to their lender after an accident or other loss and ask for a copy of the policy. You can let them know that even though the insurance policy is mainly there to protect the lender, and excludes damages outside of their vehicle, if they have damage to their own car they can file a claim so that they will remain in good standing on their loan. If they are not delinquent by more than 45 days, we will accept a claim directly from the borrower to repair that collateral and get them back in the driver’s seat. Please encourage your borrowers to get and maintain their own insurance.     "How do I rectify my insurance status?" "Can this insurance be refunded?" The quickest way a borrower can have a CPI certificate removed is to submit proof of insurance to their lienholder — your financial institution — or directly to State National. We use a variety of methods to collect borrowers’ insurance on your behalf, and we make it as simple as possible for them to comply. Options for borrowers to provide evidence of insurance include calling into our Contact Center, or mailing, emailing, or faxing their Declarations Page to our Service Center. But text and email notifications are the fastest and most convenient way for a borrower to provide us with insurance. Each text and email notification we issue includes a link that takes the borrower directly to our self-serve portal, MyLoanInsurance.com, where they can easily upload a copy of their insurance information. This portal features notice-specific videos walking borrowers through their solutions for verification. Alternately, they can choose to reply to the text or email with an image of their coverage details. Borrowers also have the option to provide us with their insurance company name and policy number, and we'll reach out for verification on their behalf. Our goal with this multichannel approach is to make it as easy as possible for borrowers to submit their information in the way that is most convenient for them.   Informed Staff Deliver a Better Borrower Experience All staff members who handle loans at your institution should have a basic understanding of what collateral protection is doing for you and how it works. We offer ongoing training and resources to your staff members. Your staff should also understand the premise and benefits behind the product — mainly, that it is there to protect your financial institution against uninsured losses. Here are some additional resources to build your knowledge about CPI: Short State National Animated Company Explainer Video What Is Collateral Protection Insurance (CPI)? Understanding the Differences Between CPI, Blanket, and Self-Insurance Remember, your financial institution’s dedicated Client Executive is here to help you with any of your CPI questions or needs!   To read the first article in this SNC Spotlight series, visit Part 1, Equipping Your Staff  

How to Explain CPI to a Borrower, Part 1: Equipping Your Staff

At State National, we recognize that collateral protection insurance (CPI) is not a term every borrower knows. Here, CPI expert and Sr. Client Executive Kathy St. Clair shares her insights on how to educate borrowers about CPI and what to say if a borrower has questions about a CPI certificate placed on their loan. If you do not know what CPI is, we recommend first reading What Is Collateral Protection Insurance (CPI)?