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.
All Posts

What to Look for in a CPI Provider

Part 3 of Our 3-Part Blog Series on Collateral Protection Insurance

At State National, we have specialized in loan tracking and portfolio protection insurance for nearly 50 years. To us, the ins and outs of collateral protection are second nature — but others may be somewhat unsure of exactly what it is, how it works, and how different portfolio protection methods compare.

State National Collateral Protection InsuranceSo, we’ve created a 3-part blog series to explain some of the nuances. In Part 1, What Is Collateral Protection Insurance (CPI) — and Do You Need It? we shared a simple definition of what collateral protection insurance (CPI) is and what it does. In Part 2, CPI, Blanket, and Self-Insurance: Which Is Better for Your Financial Institution? we compared CPI with two other portfolio protection methods: self-insurance and blanket coverage.

In this final post in the series, we discuss the differences between average and high-quality portfolio protection providers and the importance of choosing the right partner for your financial institution.

More On CPI, Blanket, and Self-Insurance

 

What to Look for in a CPI Provider

If you decide CPI is the right choice for protecting your financial institution’s portfolio, choosing the right CPI provider will save you time and benefit your bottom line. Just like shopping for a personal insurance policy, when shopping for a CPI program lenders should seek out a partner who best fits their lifestyle, values, needs, and philosophy.

A quality CPI provider will try to avoid placing insurance by diligently notifying borrowers when they have identified a lapse in insurance. They will also provide borrowers with easy and hassle-free ways to update their insurance information and avoid CPI coverage on their vehicles.

 

How Is a High-Quality CPI Program Run?

As previously mentioned, when lenders contract with a provider to track the insurance status of each loan in their portfolio, the provider will receive data files on all new loans, verify that acceptable physical damage coverage is in force, and ensure the borrowers’ insurance companies have the lender named as the lienholder. The provider will also receive regular updates on existing loans in the lender’s portfolio and process proof of insurance information when a private insurance policy is issued, canceled, or materially changed.

regular updates on existing loansA high-quality program will have technology and processes in place that enable the provider to complete these verifications as close to real-time as possible, to avoid communicating with borrowers who are complying with the requirement to purchase and maintain private insurance.

If a borrower does not obtain insurance coverage for loan collateral, it is the provider’s job to urge the borrower to do so. Throughout the life of a loan, proof of insurance is monitored to ensure that policies remain in force; if policies lapse, borrowers are sent notices advising them to reinstate coverage. A high-quality program will communicate with borrowers in multiple ways, including mailed notices, email, and text messaging. It will also offer resources, such as videos that address a borrower’s specific situation, to help educate them in clear, understandable terms about why they are being notified and what they need to do next.

Should a borrower fail to respond to multiple notifications over a period of time, the provider will notify the lender, who may choose to place CPI on the borrower’s loan. If a borrower purchases or reinstates private coverage, the CPI policy is canceled and a premium refund is issued. A high-quality CPI program will include technology to automatically calculate premium changes and refunds quickly and accurately.

Throughout the process, the provider will monitor all processes and respond to inquiries from lenders and borrowers. The highest-quality programs will provide lenders with robust online tracking tools, transparent access to program information, immediately available borrower call recordings, and detailed management reporting on their CPI program, among other features.

 

How Much Lender Participation Is Required?

A top-quality provider will offer a program that requires minimal work to administer. This frees your staff from handling routine administrative tasks associated with insurance tracking and also provides access to real-time updates. Lenders simply need to forward insurance-related documents and provide a loan file on a pre-agreed schedule.

Subscribe to Our Blog!

 

 

Look for a Seamless Experience for Your Staff and Your Borrowers

Because CPI placement is determined by the status of underlying insurance, CPI requires a high level of service, monitoring, and management to avoid erroneously placed insurance. A CPI provider’s ability to quickly identify any lapse or impairment in coverage directly correlates to saving a lender time and money.

A combination of effective tracking technology and personal, customer-focused service helps ensure that all placements are made accurately, refunds are issued promptly, and requests are handled expediently. This will minimize work for your staff and protect your borrower relationships.

  • Look for a program with a dedicated service team and a contact phone number unique to your financial institution; this provides more personal service and the ability for the provider to respond to borrowers’ questions and needs promptly and courteously, enhancing the relationship between lenders and borrowers.

  • To minimize unnecessary notices and placements, seek out a provider that offers an advanced and highly efficient technology platform. Advanced technology that offers quick and accurate processing of incoming insurance information will ensure that communication with borrowers is always based on the most current information. They should also have technology that allows borrowers multiple hassle-free ways to update their insurance, including email and interactive texting as well as online and by phone or fax.

  • Look for ease of use and transparency in the provider’s tracking and reporting system. Will your staff have to log in to several systems, or just one? Will you be able to view every notice sent, see the complete insurance history of every borrower, and listen to all recordings of borrower phone calls immediately and on-demand, right in the system? Does the system have robust reporting capability and easily accessible management reports?

  • To avoid chasing down documentation and delays in claims payment, partner with a provider that minimizes paperwork and makes use of sophisticated technology to pay claims either instantly or within days after submission instead of the industry average of several weeks.

  • Seek out a provider that believes “what gets measured gets managed” and constantly tracks both client satisfaction and borrower satisfaction to be sure they are providing superior service levels. The use of surveys, monitoring, and metrics helps ensure borrowers and staff are happy and satisfied. A company that regularly calculates the Net Promoter Score (NPS) given by their clients shows they take satisfaction seriously.

  • Ideally, your provider will specialize in portfolio protection, with systems and processes developed specifically for and built around these specialized functions. A provider that is committed to continual improvement and opportunities for you to have a say in future enhancements to products and services can also help build a successful and enduring partnership that best serves your institution in both good times as well as challenging ones.

While it’s impossible to avoid all risk (other than by stopping writing loans altogether), a high-quality CPI provider can help you, the lender, find a point of equilibrium at which the protection provided by the program complements the level of risk that your institution is willing to assume — while minimizing friction and noise and protecting your borrower relationships.

 

Read Part 1, What Is Collateral Protection Insurance (CPI)

Read Part 2, CPI, Blanket, Self-Insurance

 

We hope this 3-part blog series has provided you with useful information about what CPI is, what it does, and how your financial institution can benefit.

If you have further questions or would like to discuss your financial institution’s specific needs, call or email us today! 




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

With Custom QR Codes, It’s Now Even Easier for Your Borrowers to Upload Their Insurance!

State National brings back QR codes — now new and improved!   When was the last time you scanned a Quick Response (QR) code? Was it on a restaurant menu, on a real-estate sign, or maybe to access a form? The reliable QR code has now become a part of our daily life. In our mobile-first technology era, QR codes are back, giving consumers instant access anywhere to the targeted information you want to provide them. There is no need to keep pamphlets in stock or worry about your customers going to the wrong website when scrolling past noisy ads on search engines. While State National has offered our clients the ability to have QR codes on their borrower notices before, there was not a real demand for them until the recent increase in use sparked by the pandemic. With increased consumer receptiveness to these abstract squares and State National’s dedication to constant improvement, we are harnessing the power of QR codes again — adding on improved customizations that make it even easier for borrowers to submit their insurance when they take out a new loan or have a lapse in coverage. "We appreciate having a good vendor partner that understands your needs sometimes before you even know you have a need. State National is always looking for ways to make things better for your staff as well as your leadership.” – JAX Federal Credit Union QR Codes for Borrower Notices Borrowers can scan their personalized QR code on their mailed paper notice and be directed straight to their personal account on MyLoanInsurance.com. On this borrower-friendly site they can view their insurance status and easily provide updated proof of insurance. Since the QR code on each borrower’s notice is specific to them, no reference ID or PIN is needed, and the webpage will automatically populate with their name and vehicle type. A helpful short video applicable to their particular situation will instruct them on exactly what they need to provide to resolve their specific impairment. And finally, the site will also show them how to easily upload and submit their information. Our borrower-specific QR codes personalize the website borrowers are directed to, including details such as informing them if the lien holder is missing or if their deductible is too high.   QR Codes for Lenders Lender custom QR codes are another way we provide total access and empower your borrowers to easily update their insurance with us before they even enter our notice cycle. These institution-specific lender QR codes can be used anywhere you choose, including your website, lender agreement, and loan closing documents. Borrowers who scan your custom lender code are directed to a MyLoanInsurance.com page branded with your financial institution’s name and logo. From here, borrowers can upload insurance even if they do not know their access PIN.   Pro Tip: Add Your Lender QR Code to Your Lender Agreement to Prompt New Borrowers to Submit Their Insurance We encourage you to add your custom QR code in your new loan packet and actively point it out to borrowers when they take out a vehicle or home loan. Let your borrowers know they can scan that QR code to quickly and easily provide their insurance details. The visual effect of having the QR code on the agreement packet reminds the borrower to take action, and as soon as the website pops up, it tells them exactly what they need to do to update their insurance. MyLoanInsurance.com is accessible 24/7, so borrowers with missing information or a lapse in coverage can update their insurance at any time, at their convenience.   Scan Here for an Example of a Lender QR Code Leading by Always Improving Since 1973, State National has been dedicated to a culture of continuous improvement. We are proud to be the technology leader in our industry, and are consistently evolving to make portfolio protection easier, faster, and more user-friendly for your borrowers and your staff. We are glad to provide our lenders with these customized QR codes as the latest feature to make the process even more seamless and convenient. Borrower QR codes are already actively employed on all mailed notifications. To find out more about getting your own customized lender QR code, contact your Client Executive today!

Tackling Inflation and the Auto Industry Part 2: Maintaining Your Competitive Edge

Inflation is squeezing businesses and consumers alike. Perhaps the easiest industry in which to spot the consequences of financial stress is the automotive industry. How can you maintain a competitive advantage while also protecting your portfolio in this market? Read on to find out.   Spotlight Soundbite: Maintaining Your Competitive Edge During Auto Industry Inflation   Consumers Are Facing Post-Pandemic Financial Stress The government’s stimulus checks have long run out, as have the grace periods many financial institutions implemented at the beginning of the pandemic. Many individuals have returned to work and are again bearing the costs of gas, transportation, childcare, and other employment-related expenses. With many Americans increasingly financially strapped, what does this mean for lenders? Unfortunately, prices are soaring and may continue to rise. We know that those directly impacted by inflation (which is all lower- to middle-class Americans) alter their consumption, investment choices, and spending habits as their purchasing power decreases. Something has to give as many consumers struggle to make ends meet. Unfortunately, many may choose to scale back on or even cancel their auto insurance as a result. In addition, consumer debt-to-income ratio is expected to increase. As borrowers take out large auto loans, particularly on used cars, they will be stuck with these loans even if the value of the item purchased decreases long-term — potentially putting borrowers upside down on their loans, with a vehicle worth considerably less than what they still owe in the future.   Revenue Lost in Charge-offs What does this mean for financial institutions? Unfortunately, this financial stress being felt by consumers also increases risk in a lender’s loan portfolio. As financial institutions are providing loans for vehicles with a hyper-inflated value, it’s likely they will see an increase in bad debt as those loans start to default to historic norms and possibly higher. Without proper risk mitigation measures in place, if the collateral sustains damage or loss when a borrower is uninsured or underinsured, the financial institution making the loan can also find itself “upside down,” so to speak, with the claims amount received insufficient to cover its exposure. Not all is lost, however — financial institutions with a high-quality portfolio protection insurance program will experience relief from a significant amount of this bad debt. Not only will this critical protection keep your borrowers covered, it will also safeguard your balance sheet.   Insurance Tracking Also Helps Lenders Manage Risk In addition to the protection provided by the insurance coverage, lenders can also use the detailed borrower insurance tracking in the program to assess and mitigate risk. High-quality, real-time tracking allows lenders to leverage knowledge of a borrower’s lack of coverage as an indicator of when a loan may be at a higher risk of default. This early warning sign provides an opportunity to initiate preventive steps to work with those borrowers to avoid collections, as well as take proactive measures to step up early collections efforts.   How a Program with State National Tackle Inflationary Hardships We can help as you are undergoing a double squeeze from tighter net interest margins. In addition to decreasing your charge-offs, here are a few of the relevant ways our program supports you no matter the storm. Our partners have full transparency and access to immediate real-time data with InsurTrak, the industry’s only system built from scratch specifically for CPI. It’s your single sign-on source of truth for insurance tracking, claims, and reporting, resulting in maximum ease, speed, and transparency. With your loan portfolio data at your fingertips, accessible instantly all in one place, it's easy and quick to identify trends and potentially at-risk borrowers. Our internal infrastructure is supported by our parent company Markel, a $33 billion Fortune 500 company, which has been proudly rated “A” (Excellent) by AM Best for many decades and is regarded as an industry leader. Our combined tenure, strength, and expertise translate to unmatched peace of mind and security for our partners. Our Claims Advisory Recovery Services (CARS) boosts your bottom line by mitigating your auto portfolio losses, reducing your internal expenses, and giving you more time to spend servicing your borrowers. With CARS, we manage repossessed collateral and remarketing profitability at auctions for you while also maximizing settlements from outside insurance claims and recovering suspected skips. All of this combined with State National’s culture of continuous improvement for the past half century, unwavering commitment to investment in technology, and unsurpassed service delivery ensures we can best serve our partners in both good times and challenging times, and we can help your business weather any economic storm.   Practical Solutions for Mitigating Portfolio Risks State National's Client Advisory Council (CAC) recently discussed some practical steps their credit unions are taking for creating alternative revenue methods. Even in the face of rising inflation and decreased lending demand, there are still many ways credit unions can grow while serving their members well.     For more information on how our solutions can help your credit union, contact us! To read the first article in this SNC Spotlight series, Tackling Inflation and the Auto Industry, visit: Protecting Your Credit Union from Car Market Volatility    

Tackling Inflation and the Auto Industry Part 1: Protecting Your Credit Union from Car Market Volatility

In today’s auto lending environment, a comprehensive and high-quality portfolio protection program is more important than ever — including partnering with a provider that will pay the full loan balance instead of actual cash value (ACV).   Protecting Your Credit Union from Car Market Volatility   According to Scott Colbert, EVP, Chief Economist for Commerce Trust Co., in Q2 of 2022 there were 17,000 auto dealers in the U.S. — but there are only about 34,000 new vehicles on those dealers’ lots. That’s roughly only 2 to 2.5 new vehicles per dealer available today. Employees have returned to work amidst a shortage of the auto parts necessary for the vehicles they drive to get there. New car inventory sits on hold due to a shortage of microchips and other supply chain issues. Some dealerships report their back order for new vehicles ranges from a couple of months to 5 years! This has caused used car demand to skyrocket, along with sticker prices. According to J.D. Power, the average sales price of a new vehicle during the first six months of 2022 hit a record of $44,907 — 17.5% higher than just a year ago. Edmunds.com reported that 12.7% of borrowers who financed a new vehicle in June 2022 had monthly payments of $1,000 or more. And used cars are definitely not exempt from rising prices — the average monthly payment on a used car was $503 in the first quarter of 2022 — up from $413 for the same period in 2021, reports Experian.   Relief Is Not Yet In Sight Analysts don’t expect auto prices to begin leveling off until late in 2023 or even into 2024. Unfortunately, people who need a car now don’t have the luxury of waiting for prices to decrease — they will pay whatever they can stretch to afford. To meet this demand lenders are offering larger and larger loans for both new and used vehicles. This desperation in the car market has forced many borrowers into disproportionately high-cost auto loans — with recent higher interest rates adding to borrowers’ monthly payment burdens.   Borrowers Aren’t the Only Ones at Risk Future market volatility has the ability to impact a vehicle’s perceived value between now and when a member pays off their loan. Today’s larger loan balances and longer loan terms leave them at risk of being upside down, with a vehicle worth considerably less than what they still owe. As a result, this also increases risk for credit unions in their loan portfolios as they are providing loans to their members for vehicles with a hyper-inflated value. If the collateral sustains damage or loss when a borrower is uninsured or underinsured, the credit union can also find itself “upside down,” with the claims amount they receive insufficient to cover its exposure.   The Good News The solution? When you partner in a high-quality collateral protection program with State National, you can receive Waiver of Actual Cash Value (ACV) coverage — which means State National will pay the value of the entire loan amount remaining and not just a car’s value at the time of a claim. In “normal” times, Waiver of ACV coverage is a valuable tool for decreasing risk in a lender’s portfolio. In times like these, when lenders are already being double-squeezed by low net interest margins and increases in bad debt, it’s a vital part of a successful credit union’s risk mitigation strategy. For more information on how this valuable solution can help your credit union, contact one of our specialists today!   To read the second article in this SNC Spotlight series, visit Part 2, Maintaining Your Competitive Edge.