Improve it or Lose it! CPI puts more at risk than just an uninsured vehicle
By Rhonda Sheets, President, Support Financial Services

In times of financial instability, some of the first financial commitments that people let fall by the wayside are auto insurance premiums. The Insurance Research Council estimates that as the national unemployment rate rises, so will the number of drivers without auto insurance. By 2010, the group expects that more than 16% of drivers will be uninsured, up sharply from the historic average of around 14%. If an uninsured borrower gets into an accident, the credit union's position will be compromised. These are risks credit unions are not willing to take.

Collateral Protection Insurance, or CPI, insures property (primarily vehicles) held as collateral for loans made by lending institutions. Such coverage is critical in a negative economic environment. CPI programs help credit unions track members who stop paying their auto insurance premiums, send notices encouraging members to get covered, and 'force-place' insurance that covers the risk for members who don't respond with proof of insurance. Members typically pay for the forced insurance through a modification in their loan payment schedule.

In predictable times, CPI programs are a 'just-in-case' mechanism to protect financial institutions from paying for damages if a car needs to be repossessed. But in uncertain times, collateral protection insurance becomes a service for financial consumers whose backs are against the wall, and how that service is delivered will determine if that consumer will borrow from you again when times are brighter.

Members Benefit from a Shift toward a Monthly Premium

Typical collateral protection insurance programs charge an annual premium; people have to pay up front and pay interest on an annual premium. However, there are alternatives that provide more flexibility. Support Insurance System's Premium Alternative is designed so that the CPI premium is applied one month at a time, only when a member needs it. The monthly premium is based on the member's outstanding balance, which will decline as the member continues to make payments on the loan, and in turn, lowers the monthly premium.

Assessing a premium on a monthly, rather than an annual basis, helps ease a financial burden for members. Particularly in the current economic climate, it is easy to see how such an option can benefit members who are facing financial distress while at the same time investing in the future in terms of member relationship.

Providing Erroneous CPI Can Damage Member Relationships

Despite what credit unions might want to believe, members are financial consumers with many options first, and a credit union member second. Within the CPI industry, it is reported that 50% of provided collateral protection insurance is erroneous. If a member has to haggle with your credit union to get the CPI premium back that was applied in error, they might not come back. It is important to know how accurately your CPI is being applied and what kind of feedback your credit union is receiving from members about CPI. Support Insurance Systems consistently focuses on improved and sustained accuracy in tracking performance and currently maintains an error rate of less than 10 percent - unheard of in the industry at large.

According to Kim Lapinski, CEO at First Ohio Community FCU ($29M, Canton, OH), a major obstacle that Support Insurance Systems was able to help them overcome was the accuracy in capturing and tracking member service updates. "Before we had members who were really irate," she says, because updates about their coverage sometimes didn't get properly entered into the system of the credit union's previous CPI vendor.

The credit union also appreciates the ability to force-place just one month of CPI premium, rather than an entire year's worth. "Modifying the loan to accommodate the addition of an annual premium was shocking to the member," Lapinski notes. "This monthly option is more acceptable. It's easier for members to adjust to it."

When you consider the impact of word-of-mouth marketing, word gets around when something goes wrong. And when it goes wrong consistently, and members are irate on a regular basis, improvements must be made quickly or the member will take their business elsewhere.