--- title: "Warning Lights on the Financial Dashboard: Navigating Risk in Auto Finance" description: In this era of economic uncertainty, it's more important to stay proactive and be prepared. Read all about how to mitigate the borrower risk to your institution. image: https://blog.statenational.com/hubfs/AdobeStock_132385534.jpeg --- [![Growth_-logo](https://blog.statenational.com/hubfs/Imported%20images/Growth_-logo.svg "Growth_-logo")](http://palmspire-3842749.hs-sites.com/growth-home-1) - [Spotlight Blog](https://blog.statenational.com) ![State National Blog](https://blog.statenational.com/hubfs/Blog%20Images/Blog%20Header%20Images/AdobeStock_183702310.jpeg "State National Blog") # **SNC Spotlight** Insurance can be complex. Turn to our blog for up-to-date, relevant content to help you make the best decisions for your financial institution. With expert knowledge from seasoned industry professionals, we simplify insurance topics so you can get back to business. - [Banks & Finance Companies](https://blog.statenational.com/topic/banks-finance-companies) - [Risk Mitigation](https://blog.statenational.com/topic/risk-mitigation) - [Credit Unions](https://blog.statenational.com/topic/credit-unions) # [Warning Lights on the Financial Dashboard: Navigating Risk in Auto Finance](https://blog.statenational.com/warning-lights-on-the-financial-dashboard-navigating-risk-in-auto-finance) [Read More →](https://blog.statenational.com/warning-lights-on-the-financial-dashboard-navigating-risk-in-auto-finance) - [Banks & Finance Companies (24)](https://blog.statenational.com/tag/banks-finance-companies) - [Borrower Experience (2)](https://blog.statenational.com/tag/borrower-experience) - [Company News (26)](https://blog.statenational.com/tag/company-news) - [Compliance (5)](https://blog.statenational.com/tag/compliance) - [Credit Unions (47)](https://blog.statenational.com/tag/credit-unions) - [Employee Engagement (2)](https://blog.statenational.com/tag/employee-engagement) - [Risk Mitigation (32)](https://blog.statenational.com/tag/risk-mitigation) - [Technology & Innovation (35)](https://blog.statenational.com/tag/technology-innovation) - - - [All Posts](https://blog.statenational.com) # Warning Lights on the Financial Dashboard: Navigating Risk in Auto Finance - [Tweet](https://twitter.com/share) In the financial world, uncertainty often casts a shadow of doubt over the future. As economic experts and analysts scrutinize current data and trends, it seems likely that the path ahead is likely to be one with its [share of obstacles](https://blog.statenational.com/economic-waves-in-motion).  According to analysts at Moody's Analytics, our current economic state is that of a "Slowcession,” a unique economic state that presents both challenges and opportunities for lenders and borrowers alike. Recession: Will We or Won’t We? Expert assessment of the economy paints a nuanced picture. While Moody’s predicts the odds of a full-blown recession in 2023 stand at only around 30-33%, the risk increases significantly for 2024, exceeding 50%.  However, these predictions come with a caveat — [any major disruption could alter this trajectory](https://www.moodys.com/web/en/us/about/insights/podcasts/moodys-talks-inside-economics/what-could-go-wrong.html). The key factor at play is the persistent elevation of interest rates. The longer rates remain high, the more strain it puts on the economy, raising the specter of a recession. Traditionally, a recession hits roughly every decade. As we get closer to that ten-year mark, it's natural to see apprehension in the financial sector. In my work for State National, I have the opportunity to talk to CEOs and CLOs from many financial institutions. The majority say they do not expect the economy to dramatically improve anytime soon — where opinions diverge is on the severity of the storm on the horizon. Inflation and Savings Squeeze Job market growth is decelerating, and households have largely depleted the surplus savings they accumulated during the pandemic. Though inflation has slowed from the four-decade high set last June, it continues to[ rise more than expected](https://www.cnbc.com/2022/09/13/inflation-rose-0point1percent-in-august-even-with-sharp-drop-in-gas-prices.html), leaving consumers grappling to stretch dollars and make every financial decision count. In fact, [over 60% of Americans report living paycheck to paycheck](https://www.cnbc.com/2023/08/17/heres-why-americans-cant-stop-living-paycheck-to-paycheck.html). ![AdobeStock_336707898](https://blog.statenational.com/hs-fs/hubfs/AdobeStock_336707898.jpeg?width=727&height=485&name=AdobeStock_336707898.jpeg) Debt Default on the Rise: Credit Cards and Auto Loans More and more Americans are finding it challenging to keep up with their debt payments, reflecting the growing stress on consumers due to rising prices and increased borrowing costs. Total credit card debt surpassed $1T for the first time this year, and the rate of new credit card delinquencies for Q2 2023 was at 7.2%, exceeding pre-COVID levels.  Turning our attention to the auto lending sector, recent data reveals a substantial uptick in delinquencies. These were also higher than pre-pandemic levels in Q2, at 7.3%. Although subprime auto loans comprise the segment deteriorating more quickly, defaults are up [in all credit tiers](https://www.prnewswire.com/news-releases/vantagescore-creditgauge-july-2023-higher-delinquency-rates-persisted-as-us-consumers-spent-carefully-and-continued-to-manage-debt-levels-301911978.html#:~:text=Among%20loan%20products%2C%20the%20auto,to%2010.6%25%20in%20July%202023.). That's a red flag indicating many borrowers across the economic spectrum are having a tough time making ends meet. Car Insurance Sticker Shock When money gets tight, consumers often have to decide [which bills will be paid and which won’t](https://www.washingtonpost.com/business/2023/08/30/delinquencies-credit-auto-loans/) — and car insurance is often one of the first to go. Compounding the situation, car insurance premiums are on the rise, [spiking by a whopping 19% from August 2022 to August 2023](https://www.npr.org/2023/09/13/1199032000/car-auto-insurance-premium-inflation) — the biggest jump among all tracked expenses.  Expect these increases to continue. The complexity of repairing modern vehicles and higher prices for parts directly influence adjustments to insurer rates. Higher claim costs and other factors such as extreme weather incidents from hurricanes to wildfires, are predicted to push premiums higher, even as other types of inflation show signs of cooling.  Unfortunately, rising premiums lead to more drivers taking the gamble of hitting the road while uninsured. Full Coverage Policies on the Decline Recent data released by Insurify reveals another concerning trend. Those who don’t cancel their auto insurance completely may succumb to the temptation to skimp on their policies, dropping coverage and/or raising deductibles. In 2023, the number of drivers looking to purchase a full coverage policy plummeted by [more than 50%](https://insurify.com/car-insurance/report/) compared to 2022.  This suggests many motorists are making compromises on insurance coverage to manage their budgets, leaving them financially vulnerable in the event of an accident or damage to their vehicle — and leaving their lenders exposed to heightened risk. ![AdobeStock_480913482](https://blog.statenational.com/hs-fs/hubfs/AdobeStock_480913482.jpeg?width=8000&height=5336&name=AdobeStock_480913482.jpeg) Monitoring Risk As more borrowers fall out of compliance with their loan agreement’s insurance requirements, it is essential to have [real-time, technology-driven tracking](https://www.youtube.com/watch?v=-HmjmOAezQM) in place to monitor the changing risk in your portfolio. While insurance tracking is more important than ever, [tracking by itself is not enough](https://blog.statenational.com/protecting-your-auto-loan-portfolio-from-risk). To ensure the health and profitability of your portfolio, tracking needs to be paired with a high-quality insurance product. Some borrowers won’t be motivated to purchase insurance without a mechanism in place to persuade them — i.e., the knowledge that insurance will added to their loan if they do not take action. For a small number of borrowers, no amount of communication will compel them to purchase  insurance. In those cases, force-placed collateral protection insurance (CPI) acts as the insurance of last resort and covers your losses on damaged or stolen vehicles. A CPI policy being placed on a loan also serves as an early warning of financial distress. If the borrower can no longer afford auto insurance, they may soon have difficulty making their loan payments too. This early indicator presents an opportunity to be proactive and engage before the situation progresses to a loan default. CPI Penetration as an Indicator Nearly all lenders are experiencing higher CPI penetration. This development is a trouble light on your portfolio’s dashboard alerting of shifting risk. While losses may not manifest immediately, they are almost certain to arrive several months down the road — making it critical to have a [comprehensive portfolio protection program](https://blog.statenational.com/howmuchmoneycanwesaveyou) in place. As we navigate this "Slowcession,” and with an eye on the horizon for a full recession, lenders must be poised to adapt to changing conditions. [An extra-vigilant focus on risk management](https://blog.statenational.com/5-factors-contributing-to-increased-risk-for-auto-lenders) will be essential to maintaining a sound lending portfolio. ![Steve Schnabel](https://blog.statenational.com/hubfs/People/Steve%20Schnabel.jpg) ###### Steve Schnabel Steve has excelled in cultivating B2B service relationships for 20 years. He joined State National as a Client Executive in 2021 and regularly consults with the C-Suite and other key stakeholders within financial institutions to drive efficient CPI programs. ## Subscribe to our blog Search Posts - There are no suggestions because the search field is empty. - Recent - Popular - Categories ### Lists by Topic - [Credit Unions (47)](https://blog.statenational.com/tag/credit-unions) - [Technology & Innovation (35)](https://blog.statenational.com/tag/technology-innovation) - [Risk Mitigation (32)](https://blog.statenational.com/tag/risk-mitigation) - [Company News (26)](https://blog.statenational.com/tag/company-news) - [Banks & Finance Companies (24)](https://blog.statenational.com/tag/banks-finance-companies) - [Compliance (5)](https://blog.statenational.com/tag/compliance) - [Borrower Experience (2)](https://blog.statenational.com/tag/borrower-experience) - [Employee Engagement (2)](https://blog.statenational.com/tag/employee-engagement) ## Subscribe and Get The Latest News ## Related Posts ## [The Credit Union Advantage in a Digital World](https://blog.statenational.com/thecreditunionadvantage) Digital Progress Is Still Human - [State National](https://blog.statenational.com/author/state-national) - 5 min read - 6/30/26 12:23 PM - [Read More](https://blog.statenational.com/thecreditunionadvantage) ## [CPI and the Member Relationship: Getting it Right Without Getting it Wrong](https://blog.statenational.com/cpi-and-the-member-relationship-) How credit unions can protect the member experience without sacrificing the protection the program is designed to provide - [State National](https://blog.statenational.com/author/state-national) - 7 min read - 6/18/26 11:15 AM - [Read More](https://blog.statenational.com/cpi-and-the-member-relationship-) ## [The Anatomy of the Net Promoter Score](https://blog.statenational.com/the-anatomy-of-the-net-promoter-score) Why trust is the engine behind consistent, excellent NPS results. Imagine you could predict your organization's growth trajectory by asking just one straightforward question. You actually can! “How likely is it that you would recommend \_\_\_\_\_\_\_ to a friend or colleague?” It’s a simple question, but it carries incredible weight. You’ve likely heard of the Net Promoter Score (NPS), as it’s the most well-known metric for customer experience and loyalty. Whether the subject is a favorite local restaurant, an online store, or a long-term business partner, this single question cuts through marketing noise to measure the one fundamental factor that actually drives growth: trust. - [State National](https://blog.statenational.com/author/state-national) - 8 min read - 4/30/26 3:57 PM - [Read More](https://blog.statenational.com/the-anatomy-of-the-net-promoter-score) #### Questions? 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