Six considerations your credit union won’t want to overlook
Deciding how to safeguard your credit union’s loan portfolio can seem like a complicated decision. In the midst of all the other duties and responsibilities of running your business, it can be tempting to go with the option that seems easiest on the surface. However, as with most things in life, there’s a lot more underneath it all than meets the eye.
Many factors in favor of a tracked collateral protection insurance program aren’t immediately obvious and can be all-too-easily overlooked—until a lender that chooses another kind of portfolio protection discovers the unintended (and potentially unpleasant and expensive) consequences that can often happen with self-insurance or blanket coverage and a lack of member insurance tracking.
Why a Tracked Portfolio Protection Program Is Better for Credit Unions
Lack of member insurance tracking has some side effects that aren’t always obvious at first glance. Here are some of the risks of a non-tracked program:
1. Increase in uninsured collateral and risk to the credit union
Tracked programs encourage non-compliant members to obtain their own insurance and the right kind of insurance, and to keep it in force. Considering that an average of 1 in 8 drivers in the U.S. is uninsured—reaching as high as 1 in 4 in some states—programs that don’t have a tracking component often find that the number of uninsured members within their portfolio increases because there is no mechanism to resolve deficiencies.
2. Loss of claim dollars from standard insurance carriers
Without a tracked program, there is nothing to ensure a member will add your credit union as lienholder and loss payee—which means that if a covered loss is incurred, the claim payment goes directly to the member. Unfortunately, in some cases, the member pockets the money instead of repairing the collateral, and there is no protection for the lender when this occurs. Tracking lienholder status is essential to ensure that if you need to repossess the vehicle, you will be compensated for the damaged collateral.
3. Increased charge-offs
Without the claims benefits a tracked program provides, your credit union will very likely see an increase in charge-offs. Our tracked programs reduce charge-offs by as much as a third, which means lenders can see an increase of as much as 50% in charge-offs when they move from a tracked program to another form of insurance.
4. Negative impact on overall member population
By tracking insurance on your entire portfolio and placing a policy only on those who do not have acceptable insurance, you are benefiting all of your members. The average penetration rate (percentage of policies placed relative to the entire portfolio) of a tracked program is very low—meaning that the vast majority of your members who are compliant and keep proper insurance coverage in place are not affected by these costs. And not only does reducing charge-offs and keeping your portfolio’s uninsured rates low benefit your members overall, it also helps your lending rates stay more competitive because your credit union does not need to cover these charge-off costs (or premium costs for a blanket policy).
5. No protection of uninsurable members
In some cases, members are unable to obtain their own insurance due to poor driving history or other circumstances. A tracked program offers the ability (at the credit union’s discretion) for physical damage coverage to be extended to these members. That way, they can have the vehicle repaired and can continue driving it, enabling them to keep working and making their loan payments.
6. Loss of an early indicator of future delinquencies
Throughout our history we have seen that when a member drops insurance coverage, it can be a red flag indicating possible future delinquencies. Our tracked program and the extensive reporting it provides allow your collections department employees to be aware of potential future repayment issues. That way, they can get ahead of these situations proactively and work with the member to find ways to keep payments current. Early identification and action also reduce the risk posed by the diminishing value of the collateral, because early detection helps identify vehicles that need to be repossessed while the collateral still holds value, as opposed to later when that value could drop significantly.
As you can see, in addition to the more obvious benefits of mitigating risk in your loan portfolio by transferring the risk of uninsured collateral to an insurance provider, a program with a high-quality CPI provider also offers additional safeguards for both your credit union and your members.
Charlie Miller is State National’s VP/client service and operation. He leads SNC’s client services, contact center and document processing teams while managing day-to-day activity and short- and long-term strategy for more than 280 associates and managers. He plays a key role in driving operational improvement and product initiatives to ensure a win-win for SNC and its clients, and product strategy/development and increasing operational efficiency are what get him out of bed in the morning!
State National is a CUESolutions provider based in Bedford, Texas. In State National’s nearly 50 years as the leader in portfolio protection, and the only dedicated provider that is also an underwriter, we have optimized ways to best help our credit union partners take advantage of all the benefits of a customized, well-run program. To learn more about how you can minimize your portfolio risk, maximize your bottom line, and provide the best member experience possible, contact us now.