In good times, collateral protection insurance programs are a just-in-case mechanism to protect credit unions from getting hit with paying for damages if a car needs to be repossessed. In bad times, collateral protection insurance is a service for some members and a necessity for credit unions when a car is repossessed.
In 2008, Support Insurance Systems, a company that provides insurance, technology and consultative solutions to credit unions and banks, saw its business grow by 46%. President Rhonda Sheets said that she has seen that growth continue so far in 2009.
Phil Tschudy, media relations manager for CUNA Mutual, said that from an overall industry standpoint, CPI is always important in protecting loan portfolio assets and is even more important in today's economy since borrowers may be feeling more economic pressure than usual.
"Relative to other financial commitments, auto insurance is often one of the first to be dropped," Tschudy added. "Historically, the rate of uninsured borrowers has hovered around 14% nationally. The Insurance Research Council predicts that number could increase."
Sheets started Support Insurance Systems in 1987 to fill a void she saw with CPI. She had the idea to charge a CPI premium one month at a time instead of the annual premium typically used by other insurers.
"There's a part of the population where always having collateral protection on and off again is a reality. I didn't like how people have to pay right up front and pay interest on an annual premium. I thought there was room in the market for something different."
With Support Insurance Systems, the premium is applied one month at a time only when a member needs it. The monthly premium is based on the member's outstanding balance, which will decline as the member continues to make payments on the car loan, which in turn lowers the monthly premium.
"In the present economy; you can see how important this is. It's not the exception that someone can't afford insurance, it's a reality," Sheets said.
Currently, Support Insurance Systems has 100 credit union clients that range in asset size from $35 million to more than $1 billion. The pride of the company, according to Sheets, is in its accuracy. In the CPI industry, 50% of CPI provided is typically erroneous, and Support Insurance has an error rate of less than 10%, Sheets said.
"Too often credit unions think and say 'a member will always be with us.' The reality of it is that they're a financial consumer first and a member second, and a financial consumer with many, many options. If a member has to haggle with you to get the premium back on CPI that was applied in error, they're not going to come back."
According to Michelle Freisthler, director of operations, at Honda Credit Union in Torrance, Calif., this was the main issue that led the credit union to Support Insurance Systems in 2002. The credit union has bad experiences with two different companies providing collateral protection insurance. Both companies continually produced errors in applying CPI, which in turn resulted in complaints from members.
"We were getting constant member complaints that insurance was being added when they were already covered. It was making good members so upset that they wanted to leave us," Freisthler said of why the credit union changed to Support Insurance.
Now, Freisthler said that Support Insurance does a good job of following up and keeping track of members records and that insurance is added because the member needs it and not in error.
"They said that they could help us, but I didn't think they could. I thought the product was innately flawed and that it would never be successful."