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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.

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Tackling Inflation and the Automobile Industry: A Simple Solution to Reduce Future Auto Loan Charge-offs

Despite Inflation, You Can Still Maintain a Competitive Advantage and Protect Your Auto Loan Portfolio   Spotlight Soundbite: The Value of Customized Portfolio Protection in the Subprime Auto Loan Market     Borrowers Are Facing Financial Stress The government’s stimulus checks have long run out, as have the grace periods many financial institutions implemented during the pandemic. Interest rates have soared and prices have inflated. Individuals have returned to work and are again bearing the costs of gas, transportation, and childcare. While cheery, the holiday season may be met equally with foreboding for some as they contemplate how to balance their checkbooks with the looming expectation of events and gifts on top of already heightened regular expenses. While buy now and pay later programs may offer temporary relief, borrowers will ultimately not be able to put off making tough decisions about where to spend and save. Unfortunately, a growing number of auto loan borrowers, and especially subprime borrowers, are choosing to drop or reduce their auto insurance coverage as a result of having to decide which bills to pay with their increasingly stretched paychecks. And these uninsured or underinsured borrowers pose a threat to your institution’s loan portfolio and profitability. The news isn’t all grim, however — State National can help protect your financial institution from the risks posed by this group. How to Minimize Charge-offs Caused by Uninsured Borrowers Do you currently use an insurance tracking system to keep track of your borrowers’ coverage status in an attempt to prevent charge-offs? It’s a good start — tracking is a critical part of monitoring your institution’s risk exposure. However, having your staff track insurance in-house is a time-consuming and inefficient solution. More concerning, even if you employ an outside vendor to track coverage for you, studies show that tracking alone is not enough to encourage borrowers to keep their insurance in force. Without a consequence for remaining uninsured or underinsured, it’s been shown time and time again that a significant portion of borrowers, particularly in the low prime and subprime space, simply will not heed warnings to bring their loans into compliance no matter how many letters or phone calls they get reminding them to do so. Without a mechanism that will actually change borrower behavior, tracking alone still leaves too much risk in your portfolio. A Persistent Problem — With an InsurTech Solution The good news is, you can more thoroughly protect your portfolio while also saving labor costs and freeing up your staff to perform other tasks to grow your business. And you can do it all easily, seamlessly, and with total peace of mind when it comes to compliance. Protecting collateral from loss is most definitely not the same as it was “in the old days” — or even just a few years ago. Advances in artificial intelligence, machine learning, and other leading-edge technology solutions have changed the game when it comes to mitigating the risk from uninsured borrowers. From software bots that can log in to insurer websites and update thousands of insurance statuses in seconds to nearly effortless multichannel borrower submission options including QR codes, email, text, web, and more, collateral protection problems of the past are simply not an issue today, especially with State National as your provider. As I like to say, “This isn’t your grandpa's CPI!”     Save Time, Money, and Aggravation — What’s Not to Like? State National’s solutions provide tracking AND protect your portfolio. We also save your financial institution time with seamless implementation and multi-option borrower insurance submission solutions. Even better, there’s InsurTrak – our custom-designed proprietary technology platform where you can view all program details in real time with just a few clicks. Additionally, you can personalize your coverage around exactly what works best for your business. Whether you need you need a full-featured, comprehensive program, one that keeps costs at a minimum for borrowers, or something in between, State National can customize a program that best fits your needs.   A Simple Solution for Reduced Risk and Increased Profitability We have heard from some financial institutions that they “have no charge-offs” because they planned and allotted for a certain amount of loss. But money lost is still money lost even if you budgeted for it! What if you could save your company hundreds of thousands of dollars this year? Well, you can! Let me show you how you can leverage State National’s advanced technology and 50 years of experience mitigating loss from uninsured borrowers to proactively protect your business against today’s unpredictable economy and the wave of charge-offs your financial institution may be facing soon. It’s not too late to protect your portfolio from what’s coming our way.  

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