A “tracked” collateral protection insurance (CPI) program can mitigate auto loan portfolio losses. But credit unions need to ask CPI providers the right questions to be sure their tracked program won’t cause friction between members and the credit union.
In a tracked CPI system, the CPI provider monitors whether auto loan borrowers maintain adequate insurance. If coverage lapses, the provider notifies members, who then have the option to secure their own coverage or have the CPI provider place it for them.
If the CPI provider places coverage, the premium is added to the member’s monthly loan payment.
A tracked CPI program isn’t the only solution. One alternative is a blanket vendor’s single interest (VSI) policy that covers damaged uninsured collateral vehicles without tracking insurance. The premium is passed on to every member at the time the loan is granted, and the credit union submits the premium to the insurance company each month.
However, you will need to check to ensure your state allows the passing of the cost of blanket VSI to members, as well as determine the appropriate disclosure language on the loan documents.
Another alternative is a blanket CPI policy that provides the same coverage as blanket VSI, but the credit union pays the premium on an annual basis. The key benefit of blanket CPI is no tracking of insurance, no administrative burden of monthly submittal of loan counts/premiums, and no disclosure language requirements.
Regulators and examiners increasingly are scrutinizing collateral loan portfolios for physical damage coverage, so self-insuring your collateral loan portfolio is becoming less of a solution.
For many credit unions, however, tracked programs have key advantages, including:
- Fair distribution of risk. By self-insuring and/or paying a blanket CPI premium, all members pay the price of write-offs and related expenses for uninsured collateral. A tracked CPI program shifts the cost to members who have auto loans and but who don’t properly insure their vehicles.
- Better overall risk management. During a slow and uncertain economic recovery, many credit unions continue to rely on indirect lending and other methods of expanding into new auto loan markets. This can increase volume but also the risk of write-offs.
A tracked program can cover more loss situations than a blanket policy, and it protects your bottom line more effectively than self-insuring.
Here are three things to look for from a tracked CPI partner:
1. Accurate tracking and insurance placement. Members understandably get angry when insurance is force-placed unnecessarily. Because the force-placed insurance premium is added to the member’s monthly loan payment, credit unions must send a refund if it turns out the coverage was force-placed in error.
Look for a provider that sends timely, polite, and clear notices to members, and reacts quickly when proof of insurance is provided. Ask the provider for references—or find them among your credit union peers—and ask for their CPI refund rate.
2. Instant access to up-to-date account status. You need to be able to answer members’ questions quickly and accurately. This requires having online access to up-to-date account status for every member, including any communications the CPI provider has sent or received on the account.
3. Streamlined claims service. A CPI claims process that requires pages of faxed documentation just to file a claim is unlikely to yield quick decisions or payments.
Claims that require weeks or months to resolve can cause delinquent loans to get further behind. The delay can also stall a credit union’s effort to get a vehicle out of expensive storage, among other hassles.
These three elements are basically technological. You should seek a CPI partner with integration/connectivity and automation capabilities.
Some examples of these technologies: automated reamortization tools, integration with collections software, instant access to member insurance/claims status, and QR Codes on member notices.
If your current or prospective CPI provider can’t deliver these technologies—keep looking.