Lending

The Hidden Benefit of Tracked Collateral Protection

Protecting collateral is critical for maintaining a healthy auto loan portfolio.

June 08, 2011
/ PRINT / ShareShare / Text Size +

One might assume a credit union collections staff could think a collateral protection insurance (CPI) program that tracks whether vehicles are insured and then force-places physical damage coverage, if necessary, is counter-productive.

Collectors could argue some members will struggle to make higher monthly payments after a force-placed insurance premium has been added to the loan balance. And if the loan goes into default, the premium may increase the balance a collector is trying to recover.

But look at it from a larger perspective, advises Sally Reagle, director of collections for $700 million asset Meritrust Credit Union, Wichita, Kan. “Collections that include CPI may stand out. Collectors may say, ‘The last five auto loan collections I’ve had, the payment was raised by CPI.’ But the collectors may not know about the other 500 members who are paying the CPI premium.”

Reagle adds that Meritrust’s CPI program refunds earned premium for a repossessed vehicle with no physical damage claims, so that premium doesn’t add to the write-off amount.

And if there’s a physical damage claim, Meritrust recoups repair costs, “which can be tens of thousands of dollars,” Reagle says.

A symptom, not a cause, of default

Milton Balzer, Meritrust collections manager, says force-placing insurance doesn’t appear to cause members to get behind on payments.

“If they’re going to be delinquent,” he says, “they’re usually going to be delinquent whether they have force-placed insurance on it or not.

A 20-year veteran of collections, Balzer recalls that for two years, Meritrust replaced its tracked CPI program with a blanket policy. The policy didn’t cover as many loss situations as the tracked CPI program does, Balzer notes. “In our particular situation, the blanket policy was not paying for itself.”

Meritrust’s tracked CPI program “pays for itself,” adds Keenan Bender, director of consumer lending. Members pay for the coverage only if they don’t otherwise insure their vehicles.

Also, Meritrust is 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, Bender says.

A wake-up call

Meritrust members with uninsured collateral vehicles receive two notices within 70 days, and then coverage is force-placed. Bender says if the notices don’t prompt members to get insurance, the increased loan payment often will.

Protecting collateral is critical for Meritrust’s auto loan portfolio—the backbone of its lending operation—with 25,000 to 28,000 loans typically covered under the CPI program.

“We’re the largest credit union auto financer in Kansas,” Bender says. “We might have a few hundred certificates placed per month, but a large percentage of affected will quickly get their own insurance or provide proof of an existing policy.”

Tracked CPI helps maintain a high-quality auto loan portfolio, he continues. Meritrust’s auto loan portfolio has grown an average of 9% per year for the past 10 years. The credit union’s delinquency ratio (0.87%) and charge-off ratio (0.79%) remain below peer group levels, he adds.*

One key to Meritrust’s successful CPI program has been reviewing and adjusting coverages regularly.

“Over the years, we’ve added a number of different coverages to our program: repossession loss, premium deficiency, and other things,” Bender says. “They protect our collateral without affecting our entire membership.”

AL OLSON is a collateral protection staff underwriting specialist for CUNA Mutual Group, Madison, Wis. Contact him at 800-356-2644, ext. 6363.

*State National Insurance Company underwrites all coverages and endorsements available through the CUNA Mutual/State National Tracked Collateral Protection Insurance alliance in all states except Texas where National Specialty Insurance Company, a State National company, also provides underwriting services. Product availability and features may vary by jurisdiction and are subject to actual policy language.

Post a comment to this story

heroes

What's Popular

Popular Stories

Recent Discussion

Great article! Unfortunately, most employees don’t feel valued or appreciated by their supervisors or employers. In fact, research has shown that the predominant reason team members quit their jobs is because they don’t feel valued. This is in spite of the fact that employee recognition programs have proliferated in the workplace – over 90% of all organizations in the U.S. has some form of employee recognition activities in place. But most employee recognition programs are viewed with skepticism and cynicism – because they aren’t viewed as being genuine in their communication of appreciation. Getting the “employee of the month” award, receiving a certificate of recognition, or a “Way to go, team!” email just don’t get the job done. How do you communicate authentic appreciation? We have found people have different ways that they want to be shown appreciation, and if you don’t communicate in the language of appreciation important to them, you essentially “miss the mark”. Additionally, employees need to receive recognition more than once a year at their performance review. Otherwise, they view the praise as “going through the motions”. A third component of authentic appreciation is that the communication has to be about them personally – not the department, not their group, but something they did. Finally, they have to believe that you mean what you say. How you treat them has to match the words you use. If you are not sure how your team members want to be shown appreciation, the Motivating By Appreciation Inventory (www.appreciationatwork.com/assess) will identify the language of appreciation and specific actions preferred by each employee. You then can create a group profile for your team, so everyone knows how to encourage one another. Remember, employees want to know that they are valued for what they contribute to the success of the organization. And communicating authentic appreciation in the ways they desire it can make the difference between keeping your quality team members or having a negative work environment that everyone wants to leave. Paul White, Ph.D., is the co-author of The 5 Languages of Appreciation in the Workplace with Dr. Gary Chapman.

Your Say: Who should be Credit Union Magazine's 2014 CU Hero of the Year?

View Results Poll Archive