| Increase in Auto Insurance Risk Challenges Lenders | |
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Auto sales have picked up in recent months, and this increase is predicted to be sustained through 2012. While this is good news for lenders, it increases the amount of risk in the auto insurance market because new vehicles are more expensive to repair.
TransUnion recently released an update to its Auto Insurance Risk Index and reported an increase in the national level risk after four consecutive quarterly declines. The credit firm reports that a "fundamental change" in the level of auto insurance risk is taking place. Increased risk means that insurers will begin to see loss ratios climb, which will drive up premiums paid by lenders under blanket policies. It also means that lenders who decide to self-insure will have to absorb a greater amount of loss for uninsured damage. In this risky market, collateral protection insurance coverage and tracking are more important than ever to protect against loss and to put the costs of insurance where they belong-with the non-compliant borrower. It's also the reason that State National's sales of CPI to lenders who were on blanket or self-insured programs have been growing, to the tune of 18 new accounts last year alone. |
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| Mike Gallagher | January 4, 2012 |
| Increased Appetite for Risk Increases Need for CPI | |
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Recent data from Experian Automotive highlights the challenges for auto lenders concerned with protecting their portfolio in today's market.
More often than not, lenders are looking at riskier loans. Experian discovered that vehicle loans for customers with credit outside prime increased by over 22 percent when compared to the previous year. In the second quarter of 2011, Experian also indicated that nearly one quarter of all new-vehicle loans went to customers in the non-prime, subprime and deep subprime categories, increasing from approximately 18 percent compared to the second quarter of last year. Additionally, loan terms continued to increase, even in the subprime markets. In new car lending, 73- to 84-month loans reappeared in 2010. For used cars, Experian found that lenders also increased their use of five- and six-year loans. Longer terms and riskier borrowers increase the likelihood that vehicle collateral will be repossessed. And more often than not, repossessed vehicles will have unrepaired damage. In this market, Collateral Protection Insurance is a vital defense against loan portfolio losses. |
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| Mike Gallagher | October 06, 2011 |
| Lower Credit Scores Ignite a Need for CPI | |
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Lenders base business decisions on a foundation of borrowers with solid credit scores. Unfortunately, in today's economic uncertainty, America's credit scores are declining to new lows. 25% of consumers-over 43 million people-now have a credit score of 599 or below, up from just 15% prior to the recession.
At the same time consumer credit scores are slipping, some lenders have been weakening lending standards in an attempt to grow business. Approvals for mid-tier credit risks (620-750) increased by 12% last year over 2009, and approvals for subprime borrowers grew that same period from 5% to 9%. Auto sales to subprime buyers also increased to 17% of new car buyers and 53% of used car buyers. It will be interesting to see if this trend continues this year. Suffice to say, with another year of economic uncertainty and now, more competitive pressure, collateral protection insurance is more important than ever. Let us tell you more. |
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| Mike Gallagher | July 07, 2011 |
| Uptick in Auto Loans Increases Need for Collateral Protection Insurance | |
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After several years of stagnation, auto loans are finally seeing an uptick. US Banker reported [See US Banker Article] that new U.S. car sales jumped 17 percent in January 2011 compared with the same month a year earlier. The average amount financed also rose over $200, to $25,789, for new cars, and over $700, to $16,992, for used ones.
However, as the number of loans increases, so does the number of charge-offs. And unfortunately, the average auto loan charge-off is nearly $7,000, putting lenders at increased risk of loss as their portfolios grow. A collateral protection insurance (CPI) program is your best safeguard against auto loan loss. It can pay for physical damage or a total loss of uninsured collateral, and provide ancillary coverages such as repossession and skip. CPI programs can also be structured to pay you an administrative reimbursement (or a commission to a licensed agency) to offset the costs of administering the program. And, today's CPI programs are easy to implement as well as administer, freeing you to focus on servicing your growing book of auto loans. CPI is a smart choice in any auto lending market by providing valuable protection against loss. In a growing, competitive market, CPI can also help you gain competitive advantage by enabling you to manage your portfolio at peak efficiency. |
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| Mike Gallagher | April 30, 2011 |
| A Peek Behind the Curtain: No Insurance Status | |
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Up to ten percent of all auto loans will enter "no insurance" status at some time during the term of the loan. This can happen for any number of reasons and does not necessarily mean that valid physical damage insurance is not in force. For instance, a borrower could have changed insurers, a policy could have lapsed but been reinstated, or a new loan record may be received without insurance information. Some borrowers may also have remedied insurance deficiencies after receiving a notice from us but failed to respond to the notice itself. There are a number of reasons why the CPI tracking company doesn't know if a borrower has outside insurance.
Most carriers simply generate CPI notices and certificates based on "no insurance" status. However, State National understands that every borrower situation is unique, and we go the extra mile to avoid unnecessary notices and placements. We query our database before we place a CPI certificate on a borrower who may not have insurance, according to our records. We then make an outbound verification to the last known carrier as one last attempt to avoid force-placement. This process includes accessing other insurers' websites, or making outbound calls to confirm the presence or absence of qualified coverage. State National's proactive, outbound verification process avoids placing certificates on loans where borrowers have remedied deficiencies or reinstated policies with outside carriers. This verification process is a massive undertaking; however the benefits of our approach to cost savings and borrower relationships make it worth taking this extra step that other CPI providers do not. |
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| Mike Gallagher | February 14, 2011 |
| Insurance Buyer Trends | |
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The latest Insurance Consumer Dynamics Survey from the marketing research firm Acxiom revealed that a full 25 percent of consumers shopped for auto insurance within the past 12 months, and one-third of those shoppers changed carriers within the last year.
This spells trouble for lenders. When borrowers change insurance companies, lienholders can be inadvertently dropped, or deductibles and coverage terms can be modified. Every change to borrowers' insurance increases the chance that the coverage no longer satisfies loan requirements and puts lenders at risk. When borrowers switch auto insurance carriers, lenders' information on underlying coverage needs to be quickly updated to ensure collateral is adequately covered against risk of loss. |
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| Protect Your Collateral
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Lenders nationwide often rely on collateral protection insurance (CPI) to safeguard their interest when borrowers' insurance is inadequate to cover losses to the collateral. CPI enables lenders to manage and mitigate various risks associated with transferring the risk of uninsured collateral to an insurer.
We, as well as most CPI vendors, provide an online system that gives lenders access to tracking technology-providing instant retrieval of insurance records, customized management reports, billing options, and other information-that require little manual work on the part of the lender. Online insurance tracking information from the best vendors is updated in real-time, rather than in overnight batches. In today's economy, consumer debt is still near record levels, unemployment is over 9%, auto sales are flat, and economic uncertainty is definitely high. At the same time, cash-strapped consumers and price-conscious insurance agents are more willing than ever to switch insurers for a lower premium, increasing the chances of coverage gaps and deficiencies that can impact lenders and loan collateral. |
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| Mike Gallagher | November 24, 2010 |
| CPI Alliance Expands to Real Estate | |
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The alliance between CUNA Mutual and State National for CPI will be expanding to include a tracked real estate program as well.
Adding real estate tracking is a natural extension of the alliance program, which originally began with tracked auto. Both auto and real estate are collateralized loans, so the delivery of CPI programs is similar. There are some differences with real estate, such as the need to assess flood insurance coverage, and deal with escrow issues, but no one is better equipped to handle the tracking and management of CPI than State National. |
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The alliance between CUNA Mutual Group and State National Companies for CPI is designed to deliver the best service to credit unions and their members. Today, more than 250 credit unions entrust the protection of their auto loan portfolio to the tracked Collateral Protection Insurance (CPI) program offered through the alliance. Having both auto and real estate in the alliance program will give credit unions a single point of contact for all their collateral protection needs.
The alliance expansion is taking place now and should be completed by the end of the year.
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| David Crawford | October 6, 2010 |
| ALLIANCE TRANSITION A SUCCESS | |
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We've completed the seven-month transition of CUNA Mutual's auto CPI business to our State National program. Adding several hundred new accounts was no simple task. It took months of strategic planning and execution to make sure both current and transitioning accounts would receive the highest level of service. We added more people, resources, and IT resources to ensure we had the capacity to succeed, and it took the unwavering efforts of all our staff to make it happen.
Some competitors questioned our ability to successfully undertake this ambitious project, but we never doubted ourselves and neither did the customers who have come to know State National's commitment to service excellence. We also surveyed accounts that transitioned and have been delighted at the overwhelming and positive comments about State National. As Centra Credit Union's vice president of consumer lending, Robert L. Crump, stated, "The flow of business through State National has been very smooth from day one." The CUNA Mutual and State National alliance is delivering both immediate and long-term benefits to credit unions and their members, but we're not done yet. The alliance is the largest CPI resource for credit unions in the marketplace, allowing us to offer more value-added services and program features. The new business marketing potential is tremendous! So stay tuned, because we're just getting started. |
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| Mike Gallagher | September 02, 2010 |
| Why Not Just Have A Blanket Policy? | |
More and more lenders have discovered that blanket policies provide neither the cost savings not the ease of administration that they anticipated and are taking a fresh look at CPI. There are a number of reasons for this, but let's just look at costs:
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| The surest, fairest, most effective way to lower charge offs from damaged collateral, and get out from under the blanket premium, is a CPI program.
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| Mike Gallagher | April 07, 2010 |
| Switching CPI Vendors | |
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We've been getting a few questions from lenders who are unhappy with their current collateral protection insurance (CPI) program with other companies, but who are concerned with switching vendors because they fear it would be a hassle or disrupt their operations.
It's true that IT resources are needed in a program conversion to make sure loan and insurance files are 100% compatible; however, there's a reason why State National has been transitioning CUNA mutual accounts at the rate of more than a dozen per week. Simply put, we've done this a few times, and we know how to make it work with minimal disruption. A conversion is also the right time to get your CPI house in order—assessing deductibles, assigning authority within your organization on who can waive and pay for premiums, etc. It's a good time to see if additional staff training in CPI is needed, and to determine how your provider's online training tools can help. With any program conversion or setup, there are also are management decisions that need to be made to determine program parameter s and objectives. You need to assess the different coverages that are available and how they fit your organization. But State National can help. In fact, we're so confident in our ability to pull off a seamless transition, we're willing to provide a conversion checklist to lenders—even if they don't plan on switching to us. |
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| Mike Gallagher | February 12, 2010 |
| Delinquencies & Charge-Offs | |
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The American Bankers Association reports direct and indirect automobile delinquencies and net charge-offs each quarter in their Consumer Credit Delinquency Report. Indirect loan delinquencies were at 2.77% in the 2nd quarter of 2007 and grew steadily for over 6 quarters, peaking at 3.53% in the 4th quarter of 2008. Since the beginning of 2009, there has been some improvement as delinquencies fell to 3.26%, but were still almost double what they were in early 2005. Direct auto delinquencies have seen similar trends: growing from 1.69% in the 2nd quarter of 2007 to 3.01% in the 1st quarter of 2009 and finally lowering to 2.46% in the 2nd quarter of 2009.
The same study tracked net charge-offs for the same periods. Charge-offs on indirect auto loans have risen from 1% in the 2nd quarter of 2007 to 3.22% in the 4th quarter of 2008, recently tapering to 2.68% in the 2nd quarter of 2009, still well over double what they were just two years ago. Direct auto loan charge-offs have followed the same trend, growing from 0.61% in the 2nd quarter of 2007 to 2.36% in the 2nd quarter of 2009. This means banks have been charging off more than double what they were two years ago. If you would like to see the complete quarter-by-quarter stats for delinquencies and charge-offs since 2005, please email info@statenational.com. |
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| Christin Short | November 25, 2009 |
| Something New for InsurTrak | |
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We are expanding our online capabilities! This Fall State National is introducing a new application within our InsurTrak website that enables lenders to easily and efficiently cross-market ancillary products, including guaranteed asset protection (GAP), extended warranty, and credit life/debt protection.
This loan calculator offers functionality lenders can use to automatically calculate loan payments based on any combination of GAP, extended warranty, or credit life coverages. Calculations can be represented as either a monthly or daily amount. This new app adds to an array of capabilities available to lenders through the secure InsurTrak website, including monitoring insurance status, providing full online claims reporting and administration, and delivering comprehensive management reporting. |
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| Mandy Broadwater | October 5, 2009 |
| The Alliance | |
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Great News for Credit Unions! We have formed an alliance with CUNA Mutual Group to handle all of CUNA Mutual’s automobile collateral protection insurance business. State National will provide insurance tracking, underwriting, program administration and customer service. It also entails claims administration. CUNA Mutual looked at other options and partners, but chose us because of our years of experience and focus on the product.
This alliance creates the largest CPI resource for credit unions in the marketplace and represents a significant opportunity for State National that we believe will deliver long-term benefits to our entire client base. We were interested in this alliance because it presents a real opportunity to increase our market presence. We will have greater visibility with credit unions nationwide and we will be able to bring customers more value-added services and program features. We remain committed to CPI product enhancement in order to continue to deliver unique program benefits, services, and claims advantages that other companies simply do not offer. This alliance is truly a win-win for State National and our credit union clients and we are excited about the opportunities it represents. |
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| Mike Gallagher | August 11, 2009 |
| Data Security | |
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Most of our clients are mandated by law or regulation to exercise due diligence over third party service providers, like us, because we have access to confidential borrower information. They are required to document our efforts to keep their data secure. Requests for information on State National’s safeguards have been pretty steady for the past 18 months –from lenders both big and small. Fortunately, with our SAS 70 audits, network certification from a division of McAfee and our updated (because of our recent move to Bedford, Texas) business continuity plan, we’re in good shape to satisfy these requests.
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| Mike Gallagher | June 18, 2009 |
| New Headquarters | |
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State National moved over Memorial Day weekend to an 18-acre campus in Bedford, Texas. It’s approximately five miles northeast of our previous headquarters and about five miles from the DFW Airport.
One of the reasons for the move is that CPI is a highly specialized product that we believe requires a centralized operation. Effective service delivery requires integration and communication among several departments. That is why, unlike other providers with multiple, scattered service or data centers, we have a strategy of centralization. Our new space is actually designed for CPI. Traffic flow is set up for collaboration among claims, underwriting, call center, client support, and management staff. It’s only been a few days, but so far, so good. |
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| David Crawford | May 28, 2009 |
| Does CPI Cause Delinquencies? | |
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Some lenders tell us that they fear adding the cost of force-placed, CPI to loan balances will increase loan delinquency. However, experience shows that most repossessions covered by CPI are already delinquent before payments are ever adjusted.
In fact, CPI can be a predictor of delinquency. When a borrower lets private insurance lapse, it is usually a sign that deeper financial problems exist. In addition to providing lenders with information on insurance status, tracking systems offered by CPI providers are an important resource in the collection and recovery processes. |
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| Mike Gallagher | April 4, 2009 |
| Unemployment Rate Tied to Uninsured | |
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Earlier this year, various newspapers around the country reported that the rates of unemployment and uninsured drivers rise and fall together, according to the Insurance Research Council's latest study.
The scary part of the study was that the national average of uninsured drivers was almost 14% at a time when the national unemployment rate was less than 5%. With the unemployment rate today over 8% and projected to go higher, the uninsured average is projected to grow 3 points or more as well. What does this mean for lenders? It means that in today's economic environment, it is more important than ever to protect your auto loan portfolio. |
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| Mike Gallagher | March 16, 2009 |
| We're Blogging | |
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Welcome to the new State National blog. We are going to use this space to primarily discuss collateral protection insurance (CPI). It's unlike other insurance products and often misunderstood by lenders and users alike! We trust it will be useful so please visit often. And if you would like a specific topic discussed or have a question, feel free to send an email to info@statenational.com.
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| Mike Gallagher | Feb. 21, 2009 |