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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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How Guaranteed Asset Protection (GAP) Mitigates the Risk Caused by Record High Auto Prices

Now, more than ever, it is critical to protect your auto loan portfolio with GAP Vehicle values have been at historic highs for the past year If you considered purchasing a vehicle this summer, you likely experienced some degree of sticker shock. New and used vehicle prices skyrocketed earlier in 2021 and are only now showing signs of a slight slowdown. How did we get to the point where Edmunds.com reported the average trade-in value of used vehicles was up 75.6% Year-Over-Year (YOY) in June? Simply stated, it all began last year. The manufacturing shutdowns of early 2020 left dealers with low inventory levels as shelter-in-place orders lifted and consumers, armed with stimulus funds and a desire to spend, went auto shopping in droves. The resulting low dealer inventories meant that would-be new car buyers were often forced to consider used vehicle options instead. Both new and used vehicles prices started rising in response to this unusual surge in demand. Despite seeing some stabilization of vehicle pricing in late 2020, things took a turn for the worse this year due to the global shortage of microchips. According to TrueCar, a Consumer Reports partner, there still remains an inadequate allocation of microchips for automobile manufacturers, exacerbating the inventory shortages that began in 2020. With inventory down as much as 50% in some areas, willing and able consumers are paying significantly more, with 20% of all new car purchases in May 2021 transacting at amounts above MSRP. This phenomenon has not been limited to new car purchases only — CNBC shared earlier this month that the average price of a used vehicle was up 21% YOY with a 10% increase from Q1 2021 to Q2 2021. What does the future hold for car values? July witnessed a slight reduction in the rate at which vehicle prices were increasing YOY. However, Carvana’s CEO, Ernie Garcia, warns that the cost of used cars will not normalize until manufacturers can produce inventory at pre-2020 levels. Supply chain challenges are likely to cause “some lasting” impact on used car prices, said Garcia on an August 6th CNBC’s Squawk Box. Black Book, in their 2021 Vehicle Depreciation Report, paints a slightly less optimistic picture, projecting “residual forecasts to return to pre-COVID 19 valuation levels in 3 years.” How will this valuation normalization impact lending portfolios? For a variety of reasons, many consumers found themselves paying in excess of MSRP or NADA for a vehicle over the past 18 months. This reality will not change overnight — it will take the automobile manufacturers replenishing and maintaining inventory levels on a consistent basis for prices to normalize. Whether that be in 2022, or in 3 years as predicted by Black Book, the reset of vehicle valuations has the potential to negatively impact your auto loan portfolio. Black Book’s annual vehicle depreciation rates averaged approximately 13% for each of the 9 years prior to 2020, when it dropped to just 2%. As vehicle valuations fall back in line with more historic depreciation models, loans already on the books as well as loans written through the remainder of 2021 will reflect inflated sales prices. In the event of a future theft or total loss at a time when vehicle values are back to pre-COVID-19 levels, primary carrier Actual Cash Value (ACV) settlements will result in unprecedented deficiency balances. And that is where GAP can help. Essential protection for you and your borrowers GAP has always been an important risk management tool. However, in today’s economy when vehicles are still selling above MSRP or NADA, it is especially important to lenders and borrowers alike for collateral to be protected against the changes in valuation expected over the next several years. Private Passenger Auto carriers settle total loss claims based on the ACV of the vehicle immediately prior to the loss, regardless of the original sales price. Inflated sales prices mean inflated loan balances on the date of loss, resulting in increased deficiency balances — the exact thing GAP is designed to protect. Not only will your potential charge-offs be reduced with GAP protecting your collateral, but your borrowers will also be better positioned to finance their replacement vehicle without the burden of having to satisfy a large deficiency balance on their original loan. How State National's GAP is different The State National GAP product provides unparalleled flexibility in the marketplace, primarily given our unique position as the direct sales force, underwriter, and program administrator. With options to protect amounts up to 150% of MSRP or NADA, you won’t need to worry about future deficiency balances resulting from today’s extraordinary market conditions. Additionally, you can rest easy knowing your pricing is not inflated to cover agent costs or, worse yet, that you will be part of an across-the-board rate adjustment because another lender’s program is not performing as expected. If you’re looking for the most efficient GAP claim submission process (it’s true — we really do not require any supporting documentation to initiate a GAP deficiency balance claim) and fastest claim settlement time (2 to 3 days, on average), isn’t it time you consider State National for your GAP Program? Contact us today to start protecting your consumer loan portfolio from the effects of inflated auto prices — driving a more positive experience for you and your borrowers.     Contact us today to receive more information about GAP from State National. Francine Gagliano, State National Director of Client Services 817-265-2000 x1247 or fgagliano@statenational.com

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State National Employees Crowdsource to Give Their Company Blog a Name When we launched our State National blog in 2020 as part of our company’s newly redesigned website, we had a few goals in mind: To provide valuable thought leadership and educational content that could be of help to our clients, potential clients, and anyone else in the industry whether they ever became a client or not To add even more transparency (one of our main core values) around the way we do business To help others in the industry get to know more about the thoughts and insights of some of our experienced subject matter experts and assist in building relationships To share more about the company culture we’re very proud of with those in the industry and with potential future employees And of course (speaking of transparency), because we are in business — to share benefits and features of our products and services and show credit unions, banks, and finance companies how we can serve them and help them be more profitable and successful The blog has been a great success so far, and we’ve received really positive feedback about the value people are receiving from our content — thank you!

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