Credit Unions as member-owned cooperatives have always kept their focus where it should be: their members. Credit Unions constantly make sure everything that is done is member friendly and that members know they are part of the family. More and more credit unions are re-evaluating internal programs to make sure they live up to the goals they set concerning member relationships. One product receiving a lot of attention is Collateral Protection Insurance (CPI or Force-Placed insurance) with outsourced tracking. 

Why are Credit Unions re-evaluating the impact of CPI and tracking on member relationships? We listened to Credit Unions across the country, and here is what they had to say.

Impact on the Member Relationship

• Members and Credit Union employees become annoyed when they receive what they perceive as unnecessary insurance mail.
• Members are bothered by having to contact their insurance company and the Credit Union when they know they have valid coverage.
• “False” force placements when members had insurance all along upset their members.
• The high cost of Force-Placed CPI premiums on members who already can’t afford their insurance .
• The actual coverage provided for members is low providing only Physical Damage coverage (no bodily injury, medical/personal injury or property coverage is provided on CPI).
• Members perceive the coverage as “the Credit Union’s coverage” and are upset when it doesn’t pay what they expected.
• Members are not always treated well by tracking company staff leading to more involvement by Credit Union personnel and leadership.
• “Reputational risk” is associated with frustrating and cumbersome insurance tracking and the errors that occur during the process.
• “Member noise” is a phrase that is typically connected to CPI.
• The overall feeling that CPI isn’t member friendly and hurts a Credit Union’s otherwise popular perception in the community.

Legal and Compliance Issues

• Legal risks from using high cost and low coverage insurance for members.
• Possible compliance issues when CPI providers add coverages that benefit only the lender, but the member is paying for the cost (like skip tracing).
• Class action lawsuits. There is a growing awareness among the public and class action attorneys to look for any situation where a lender could be seen as taking advantage of their customers.

Financial Considerations

• Increased loan balances and payments due to the high cost of CPI coverage.
• Increased delinquency and charge offs due to high CPI premiums (premium deficiency refunds typically not applicable once the program loss ratio is 50%).
• CPI requires taking money out of Credit Union/member assets to finance the premiums, which are often more than 15% of the loan balance annually.
• Increased loan balances and payments due to the high cost of CPI coverage.
• Increased delinquency and charge offs due to high CPI premiums (premium deficiency refunds typically not applicable once the program loss ratio is 50%).
• CPI deductibles and limits reduce or eliminate skip coverage.
• Adverse selection on CPI drives up cost and lowers coverage since it is only placed on mostly troubled loan situations.
• Force-placed insurance is a catalyst for delinquency.

Read our related article: Can I really stop tracking Insurance and force-placing CPI coverage on my loans?

Operations and Human Resources

• Staff and members not receiving responsive service from tracking company staff causes delays and mistakes
• Valuable staff time dealing with paperwork, reports, billings, premiums, agent and member calls 
• Management and executive time is spent on dealing with CPI issues and member complaints 
• Staff and members not receiving responsive service from tracking company staff causes delays and mistakes
  Member and staff confusion because of systems, insurance agent and company delays that cause insurance documents to cross in the mail
• Staff and members not receiving responsive service from tracking company staff causes delays and mistakes
  Member and staff confusion because of systems, insurance agent and company delays that cause insurance documents to cross in the mail

The comment we receive most? “There has to be a better way,” when referencing how to protect against uninsured loss.

Given that list of comments from Credit Unions, it is not surprising to see more and more of them reviewing alternatives to Force-Placed CPI. Hundreds of Credit Unions across the country have switched to a Blanket Insurance approach, which eliminates insurance tracking and force-placing on auto loans and other portfolios altogether. Many other Credit Unions have made changes to their existing CPI program to try and alleviate the problems it creates with membership. The collection manager at a large Credit Union we work with recently commented, “I am so glad we made the switch to Blanket VSI coverage years ago. All of the negative interactions with members went away, and we saved tens of thousands of dollars in staff time and formerly charged off CPI premiums. We will never go back to CPI.” 

Read our article: What Option is Best for your Collateral Protection Insurance

Is it time for you to re-evaluate if your insurance tracking and CPI program is meeting your goals for member relationships? If you want to learn more about Blanket Insurance, click on the book below to request a copy of our Guide to Blanket 360 Insurance. Our experts have helped hundred of Credit Unions with their collateral protection.