Q&A: Benefits of a Tracked Collateral Protection Program
October 3, 2011
October 4, 2011
By Al Olson
A smooth-running tracked collateral protection insurance (CPI) program is important for any credit union that relies heavily on auto lending, as most do. Maintaining growth while keeping a high-quality portfolio has become more difficult in a troubled economy—especially for credit unions with extensive indirect auto loan programs.
We asked Meritrust Credit Union, the largest credit union auto financer in Kansas, for perspective on CPI programs that track whether vehicles are insured and then force-place physical damage coverage if necessary.
The credit union shifted from a tracked program to a blanket insurance policy several years ago before moving back to a tracked program. Meanwhile, its auto loan portfolio—built largely through indirect lending—has grown in each of the last 10 years by an average of nine percent, with delinquency and charge-off ratios below its peer-group levels.
Three Meritrust employees— Keenan Bender, Director of Consumer Lending; Sally Reagle, Director of Collections; and Milton Balzer, Collections Manager—answered questions about their tracked CPI program:
After you switched to a blanket policy to insure collateral vehicles, why did you switch back to a tracked program?
Balzer: The blanket policy didn’t cover as many loss situations as the tracked CPI program does. So, in our particular situation, the blanket policy was not paying for itself.
Bender: We were paying substantially more in premiums than we were receiving in coverage. Our tracked CPI program pays for itself. And we’re compensated for some administrative costs by the insurance provider (an alliance of State National Companies and CUNA Mutual Group). The goal is for the CPI program not to pass along the costs of uninsured collateral to all members. This way, members pay for the coverage only if they don’t otherwise insure their vehicles.
Has it been your experience that force-placed insurance premiums cause members to become delinquent or to default? And does the premium amount add to write-off amounts?
Balzer: If members are going to be delinquent, they’re usually going to be delinquent whether they have force-placed insurance on it or not.
Reagle: Our CPI program refunds earned premium for a repossessed vehicle that has no physical damage claims, so that premium doesn’t add to the write-off amount. And if there is a physical damage claim, we recoup the repair costs—which can be tens of thousands of dollars.
Have you added coverages to your basic CPI package?
Bender: Over the years, we’ve added a number of different coverages to our program: repossession loss, premium deficiency, and other things. They protect our collateral without affecting our entire membership. For example, a lot of times you’ll get a notification from a storage yard saying they’ll need $1,000 for storage fees or repo fees that may be higher than the cars are worth. If you have that option, you can file a claim and get those costs reimbursed.
Reagle: We also have coverage for law enforcement compensation and conversion (also called “skip”) coverage. You can customize these programs to the needs of your credit union and the budget.
How do you measure whether your tracked CPI program is working?
Bender: A monthly report from State National tells us the amount of our loans that have CPI, how many loan dollars are protected by that coverage, and our loss ratio (earned premium to losses), among other things. With 25,000 to 28,000 loans typically covered under the CPI program, we might have a few hundred certificates placed per month. But a large percentage of those members impacted will quickly get their own insurance or provide proof of an existing policy.
Al Olson is a Collateral Protection Staff Underwriting Specialist for CUNA Mutual Group. Contact him at 800.356.2644, Ext. 6363 or at email@example.com.
Questions? Contact Sales & Marketing Associate Craig Reed: 206.340.4789, firstname.lastname@example.org.
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