FORT WORTH, Texas – With new and used auto loans comprising an estimated 40% of all loans in credit union portfolios and uninsured motorists running as high as 32% in some states, guaranteeing the protection of collateral in a credit union's auto loan portfolio could strongly impact lending success. To help credit unions find out just how much a collateral protection insurance program could save them, State National Companies has developed a proprietary computer program that calculates a credit union's potential annual CPI savings. "Our free CPI Value Analysis Report quantifies the actual savings a specific lender can realize," says John Pearson, a senior vice president with State National Companies. "With more than 30 years of experience, we've been able to identify the critical factors that impact portfolio losses, so we can give credit unions a more accurate estimate of what they can save. More often than not, we find there's quite a bit of money at stake for them." The CPI Value Analysis uses basic information provided by the credit union to calculate how much they can save on losses, and net on reimbursements, to the auto loan portfolio. Information includes: * Configuration of the loan portfolio: prime, near-prime, or sub-prime. * The primary state(s) or region(s) of the country where the loans reside. * Value of the portfolio, number of loans and annual charge-offs. * If the credit union would require a reimbursement for administering the program. "We're seeing more pressure on portfolio managers to improve the bottom line at a time when it has become harder to make top quality loans and interest rates are at historical lows," says Pearson. "Managers want to know about every viable alternative, and we see more of these managers choose CPI when they learn what the numbers really are." Despite laws in most states requiring liability coverage, 14% of drivers nationwide don't have it, according to David Hale, State National's CFO. "In some states, it runs as high as 32%. Comprehensive and collision coverage, which is not required by law, is even less common. Uninsured borrowers represent significant exposure to a credit union. Damage to uninsured collateral can severely limit the performance of a portfolio." Alan Stabler, VP at America's First FCU in Alabama, said, "In this business, collateral protection insurance is a necessary evil. State National has made it more pleasurable. We've had CPI for 15-20 years, originally with another vendor. We have too many auto loans to track them ourselves. We see a significant number of claims on uninsured members that otherwise would have been losses on our books. Without CPI, the losses would be borne by the members and would significantly impact our bottom line." "There are three things you can do to stop losses," Pearson says. "One, do nothing. The credit union absorbs the losses, and the percentage of uninsured borrowers and annual losses will increase. Tracking helps, but without a mechanism for forced placement of coverage, it `s rarely effective. This plan usually lasts until you are hit with your first big loss. "Two, take out a blanket policy, where the insurer charges the credit union a fixed dollar amount per vehicle or a percentage of the outstanding loan balance. Again, with a blanket policy as losses go up, premiums and deductibles also go up. A blanket policy doesn't go after the problem people, so problems continue to grow. Plus, everyone pays for the coverage, even your `A' member, who shouldn't." "Three, take out collateral protection insurance," said Pearson. According to Pearson, poorly defined guidelines for the administration of collateral protection insurance and unscrupulous service providers may have scared some credit unions away from the product in the late 1980s and early 1990s. He says those credit unions should give CPI another look. "People are coming back because it's the only alternative that works," he said. Houston Postal CU has carried collateral protection insurance with State National for almost 20 years. Jim Stark, CEO says, "State National has always worked well with our members and in the processing of our claims. They fit within our program instead of making us fit within theirs. Concerning premiums versus losses, they work with us in whatever way they can so we don't have to change our rate They have an employee who comes and works in our credit union three times a week. We can't say anything better about our relationship." CPI is a guarantee-issue, no underwriting required insurance product. A defaulting borrower is "written" regardless of age, driving record or location of residence. Premiums are paid only by the offenders, and not shared by all credit union borrowers. Primarily, the risk of loss is transferred from the credit union to the insurance company. "State National receives a file of all new loans and updates on existing loans in the lender's portfolio and then tracks the insurance status of each loan," said Trace Ledbetter, State National's senior vice president of service. "We detect which borrowers have not provided proof of insurance and send appropriate notices for them to do so. After all notices within a "notice cycle" have been sent, the credit union may choose to place CPI on the borrower's loan to protect their interest from damage or loss. The credit union passes the premium charge to the borrower by adding the premium to the balance of the loan." State National views electronic data interface (EDI) as the future of the business. By linking directly with major insurance providers, proof of coverage (or non-coverage) can be confirmed without involving the credit union or the member in question. EDI transactions currently represent approximately 15% of State National's total business. "EDI takes the borrower out of the loop if they do have legitimate coverage. This is particularly important in the case of an `A' member," said Ledbetter. [email protected]