FORT WORTH, Texas-As the unemployment and foreclosure rates continue to climb, so does the number of people who forgo insuring their vehicles, making collateral protection insurance even more critical for credit unions.
John Pearson, executive vice president at State National Companies, believes the need for collateral protection is greater than ever.
"If you think about it, it is totally logical. For most people that start running into tough times car insurance goes [first]," he said. "In good times, it's usually maybe 2% to 3% of the population that doesn't have insurance, in bad times it can balloon to maybe 5% to 6%."
Though credit unions are seeing their market share of auto loans increase substantially as other lenders pull out, meeting loan volume goals across the board is becoming increasingly difficult.
Loss Mitigation Now More Important
"Loss mitigation now becomes even more important and that's where we step in," Pearson offered, noting that collateral protection is State National Companies' main source of business.
Pearson said he sees CPI as a great deal for both credit unions and members as vendors track each vehicle electronically and do not hassle borrowers until they have discovered the borrowers have dropped their policies. The credit unions also do not have to pay a dime for this form of protection.
"Even though the credit union is the named insurer on the policy, we recoup that rate from the borrowers," Pearson noted. "(And) it only affects that small portion of the population that doesn't get insurance."
Using force-placed collateral protection also throws an additional measure of risk management into place, which could pay off for the credit union looking to lower the premiums it pays to insurers covering their portfolios by taking another slice off its exposure to losses.
Aside from losing out on the value of a totaled car not covered by insurance, collateral protection also ensures members who run off with their vehicles don't burn credit unions.
"There has been a rise in skip claims where the borrower has the car but conceals it or takes it someplace else where the credit union can't repossess it," said Pearson. "We would reimburse the credit union for the cost of the car."
Even if a credit union were able to repossess all vehicles with delinquent owners, many of such cars are damaged or worth less than the loan balance.
Collateral protection would then work much like GAP insurance and makes the credit union whole even if the damages are not repaired and the car not re-sold into the marketplace.
For more information
www.swbc.com
www.cunamutual.com
www.statenational.com
