NAFCU Services Blog

By: Allied Solutions

Identifying, measuring, monitoring, and predicting risk in auto loan portfolios can be a serious challenge for financial institutions. Approaching this challenge while building borrower rapport can be a difficult balancing act. Therefore, having a risk-management program in place with a strong focus on avoiding financial losses, decreasing loan defaults, and improving the consumer experience is vital.

For lenders, it’s important to remember that no two borrowers are alike – and neither are their insurance or loan histories. A risk-management strategy should serve lenders and borrowers by accommodating a range of consumer lifestyles and preferences. Sophisticated analytical tools may help with this process by making it easier to forecast borrower insurance coverage and determine the likelihood that they will maintain outside insurance – ultimately providing you peace of mind and allowing you to channel your efforts accordingly!

An auto loan agreement isn’t just a shared understanding of loan requirements – it should establish a commitment between a lender and a borrower. Like with any successful relationship, effective communication is imperative. By implementing a risk-management strategy, like a Collateral Protection Insurance (CPI) program, you’re able to personalize interactions with your borrowers and position yourself as an invested stakeholder, willing to help protect both your interests and the interests of your borrower.

Risk Management Consultant at Allied Solutions, Cindy Bryant, suggests taking a conversational approach when communicating loan requirements to your borrowers in a way that terminology can be easily digested and understood. “Taking this approach may encourage your borrowers to maintain adequate insurance, thus preventing the need to add a CPI premium to the loan in the future.”

In her nearly 30 years of experience with CPI, Bryant has noticed a common theme for borrowers who become delinquent on their loans. “If a borrower’s vehicle incurs damages or is considered no longer drivable due to the damage, the borrower may lose motivation to continue paying for the vehicle and ignore payment notices.” Encouraging borrowers to maintain insurance that would cover the costs to repair damages would arguably reduce the likelihood of delinquency and promote a positive loan performance.

Using new technologies to help simplify this process is important to enhancing your member's experience. Video marketing, for example, is a powerful way to provide personalized communication with your member and improve collaboration when it comes to verifying insurance. Bryant also recommends sending customized key messages to your borrowers early while insurance coverage is still top of mind.

There are many factors to consider when developing your risk-management strategies, and it is essential for your approach to keep your interests and the interests of your borrowers protected in order to improve borrower engagement and build long-lasting relationships.

To hear more about ‘Understanding the Real Risk Associated with Uninsured Loan Collateral’ listen to our two-part series podcast by Risk Management Consultant, Cindy Bryant.

‘Understanding the Real Risk Associated with Uninsured Loan Collateral. Part 1’

‘Understanding the Real Risk Associated with Uninsured Loan Collateral. Part 2’

Allied Solutions is the NAFCU Preferred Partner for Insurance—Bond, Creditor Placed (CPI), Guaranteed Asset Protection (GAP), and Mechanical Breakdown Protection (MBP); and rateGenius. Learn more at www.nafcu.org/allied.