It’s getting more expensive every year to insure a vehicle, with the recent average premium tipping towards $1,800/year. High monthly loan payments, plus auto insurance premiums, place financial strain on borrowers, resulting in many borrowers neglecting to protect their collateral with adequate insurance. Increased lapses in coverage are causing credit unions to adapt their collateral protection strategies to better mitigate risk of damaged, uninsured collateral. However, many lenders track insurance for the sole purpose of risk mitigation, neglecting to keep the borrower at the center of the program.
Enter…borrower-centric insurance tracking.
Holistic, portfolio-wide insurance tracking does more than monitor borrowers’ insurance information. It validates insurance coverage, determines which borrowers need to be reminded of their insurance requirements, sets a strategic cadence for notices, and places lender-held insurance on the collateral as a final protection measure.
Holistic insurance tracking protects more than your loan collateral — it also ensures that your relationship with your borrower is intact. Keep reading for three ways to keep your borrower in the forefront as you remain risk aware.
1. Be Focused on Borrower Benefits
Your members are your number one focus, and it can be alarming to see a premium added to their loan balance for lack of insurance – especially when they are maintaining adequate insurance. That’s why insurance tracking programs have historically been “noisy.” A comprehensive program focuses on reducing or eliminating an unpleasant borrower experience. Consider implementing borrower benefits that can help avoid penalizing a borrower that experiences a short lapse in coverage. Delayed billing is a key feature to keeping insurance tracking centered on borrower support. If a borrower does not respond to print and digital notices reminding them of their insurance requirements, a final notification coupled with a lender-placed certificate of insurance can prompt borrower action. Delaying the billing cycle of lender-placed coverage (a.k.a. Collateral Protection Insurance (CPI)) 14-28 days can reduce unnecessary premium billings by upwards of 35%. The minimum delayed billing of 14 days also safeguards compliance for any delayed CPI charging requirements a state may impose.
Want more? Check out "Take Care of Borrowers and Keep Regulators at Bay" on The Allied Angle podcast!
2. Be Compliant
In recent years the CFPB has become highly in tune with borrower sensitivity, particularly around unfair, deceptive, abusive acts or practices (UDAAP) in auto lending. To comply with UDAAP requirements, insurance tracking and placement programs should avoid policy fees, processing fees, and interest on fully refunded premiums. The guidance of the NAIC (National Insurance Commissioners) should also be followed for compliant best practices.
3. Be On Time
Timely premium refunds, specifically, are critical. It is regulatory best practice to initiate the refund 0-15 days post-receipt of insurance. A consumer-friendly refund strategy provides fairness to the borrower and regulatory safeguarding to your FI.
The bottom line: insurance tracking contributes to enterprise-wide risk management. A strong program should evolve to supplement, rather than dictate, lending strategies. Keeping these tips in mind will not only keep your organization risk aware but will improve the trust and quality of the relationships you are building with your members.