Tracked Collateral Protection Insurance Programs Can Help Protect Credit Unions’ Interests

By Jay Morgan, director, product management for collateral protection, CUNA Mutual Group

Absorbing the full cost of auto loan write-offs caused by damaged or stolen uninsured vehicles usually isn’t a prudent option when a credit union’s bread and butter is its auto loan portfolio. But a “tracked” collateral protection insurance (CPI) program could help protect the credit union’s interest in the loan collateral.

In a tracked collateral protection insurance program, the CPI provider monitors the insurance coverage for vehicles in a credit union’s auto loan portfolio. If members don’t provide proof of insurance after buying a car, or if their coverage lapses later for any reason, the CPI provider notifies members and requests valid proof of insurance. If members fail to do this within a set period, the CPI provider places insurance on the vehicle, and the premium is added to the member’s loan payment.

Tracked CPI programs typically offer a variety of options for lenders, such as coverages, rates, timing of notice cycles, etc.

In working with credit unions that are considering this type of program, certain questions crop up repeatedly. As you’d expect, the most common questions involve how these programs will affect members, and how members are likely to react.

Most credit unions answer these questions through basic due diligence: reviewing documents the firm would send members, talking with other credit union clients, examining audit reports from accounting firm reviews, etc. But after addressing the basic concerns, credit unions still tend to ask these questions about CPI vendors:

Q. How can we be sure a CPI vendor’s system is a good match for our credit union?

Look for these attributes in a CPI vendor’s processing system:

  • The CPI vendor’s system should be able to send files to your core processor so you can automate loan payment changes.
  • You can submit claim information electronically. If you have to bundle paper documents and fax or snail-mail them to the CPI vendor, there’s more of a chance that every possible claim won’t be submitted, which can drive up charge-offs and reduce the benefit your credit union receives from the CPI program.
  • Your front-line staff can easily access up-to-date information on a member’s insurance or claim status through the CPI vendor’s system. Some members will always prefer to call your credit union or stop into a branch rather than contact the CPI vendor. Your staff should be able to see whether insurance has been placed through CPI and which notices have been sent to members. It would also be helpful to be able to listen to recorded phone calls between the member and the CPI vendor. In short, the CPI vendor’s online tracking system should allow you to resolve most members’ questions quickly when they stop in or call.

Q. Will the vendor automatically add insurance premiums to each monthly loan payment?

Automatically re-amortizing loans encourages members to get their own coverage. In contrast, adding premiums for coverage placed through CPI to the end of the loan does not encourage members to get their own coverage—and could, in fact, lead to an unpleasant surprise for members who find a balance still due at the end of the original loan term.

Q. How will we measure how well our tracked CPI program is performing?

A good informal measurement is the overall reaction of members—are you getting many questions or complaints related to CPI?  In terms of metrics, an effective CPI program should play a role in improving your auto loan portfolio’s charge-off ratio.

Beyond the members’ reactions and the numbers, a good indication of a successful tracked CPI program is strong communication and a pro-active partnership between your credit union and the vendor. Look for a CPI vendor that will dedicate experienced, knowledgeable service staff specifically to your credit union.

Jay Morgan is the director of product management for collateral protection at CUNA Mutual Group. Reach him at Jay.Morgan@cunamutual.com. The alliance of CUNA Mutual Group and State National Companies offers tracked CPI programs.

Strategic Link is the NWCUA’s wholly-owned service corporation, using the power of aggregation to provide the Association’s member credit unions with exclusive high-quality, competitively-priced products and discounted services. Contact Director of Strategic Partnerships Craig Reed today to find out how Strategic Link can help your credit union save money while meeting its goals in 2014 and beyond: creed@nwcua.org.

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