We’ve all seen the headlines: Inflation is up. Purchasing power is down. The stimulus money to consumers from years past is long gone. Both new and used car values are inflated. Borrowers are taking out larger loan amounts. Any way you look at it, many consumers are feeling strapped — and when people are struggling financially, they look for any way they can to save cash. Unfortunately, a common “solution” is to let their auto insurance lapse, or raise their deductible.
Insurance tracking alone is not enough. Research has shown that merely tracking who’s covered and who’s not does not effectively or reliably change borrower behavior. Even with repeated reminders to correct the deficiency, without an enforcement mechanism a significant percentage of borrowers, particularly non-prime or subprime borrowers, simply won’t maintain the coverage they committed to in their loan agreement. Unless there is some consequence for noncompliance, many are unlikely to take the initiative to purchase a policy just because of letters or phone calls from their lender.
Lenders will sometimes tell me that a tracking-only program is such a negligible cost that it’s not a big concern. What they don’t realize, though, is that any amount they spend on it is largely money they’re flushing down the drain. Because passive tracking only, without a creditor-placed product, doesn’t change borrower behavior, it also doesn’t change your institution’s risk profile — your risk is still there! And isn’t lowering your risk the purpose for tracking insurance in the first place?
On the other hand, when you combine a technologically sophisticated tracking system with a high-quality creditor-placed insurance product, you’re getting the most bang for your buck, in two important ways:
When a borrower who was incentivized to go out and purchase their own coverage has an accident, it’s their insurance company they’re going to call — not you. Meaning this borrower’s accident isn’t going to turn into your problem, your charge-off, or a ding on your balance sheet.
Uninsured borrowers and charge-offs can be a costly reality for any auto lender. Combining accurate, technology-driven tracking WITH a high-quality insurance product is a proven way to mitigate the risk of charge-offs hitting your balance sheet. A comprehensive portfolio protection solution will not only be affordable to your borrowers while providing your company with robust protection — it is the only strategy that will actually change the behavior of borrowers when it comes to purchasing and keeping the coverage they need to protect both of you.