What credit unions should know about protecting their portfolios in uncertain times

As everyone reading this is well aware, credit unions are special. No other financial institution exists with the mission of serving the well-being of their customers above all else, like credit unions do for their members.

As everyone also knows, the world is currently experiencing extraordinary circumstances that have upended daily life — now, there’s no such thing as “business as usual.” One question being posed by credit unions everywhere is “How do we best care for our members during this time of unprecedented economic and social upheaval?”

Caring for your members involves many decisions, both large and small, in every single area of your institution. Along with decisions related to areas such as whether to close branches, the amount of cash to keep on hand, and possible lending modifications — among hundreds of others — choices about how to safeguard members as well as your institution from undue risk are more important than ever.

The Balancing Act of Risk Mitigation

We recently conducted a series of interviews with risk mitigation professionals from credit unions of different sizes across the country. The risks they face may have a different flavor depending on where they are and how many members they serve, but in talking to them it became immediately clear that striking a balance between what is right for the financial institution and what provides a great experience for the member is a constant balancing act. Economic uncertainty, political volatility and, yes, even global pandemics, can make that tightrope even narrower.

Risks our interviewees discussed were wide-ranging and varied in complexity. Planning for vulnerabilities as far-reaching and multi-layered as technological competition, compliance in a changing regulatory environment, and data integrity and security were a big part of what these professionals deal with every day. They also talked about more concrete but no less important aspects, such as weather emergencies and the everyday operational risk that comes from serving people in a physical location.

Protecting your portfolio now

With that said, portfolio protection is our greatest area of expertise, so we can speak to it in the most detail. We’ve heard from many of our CU partners seeking guidance on how to handle their CPI programs now. Each institution is unique, so there are few blanket statements to make about specific program details that would apply to all. What does apply to everyone, though, is that mitigating risk in your portfolio is critical to weathering this storm as well as recovering successfully when the storm has passed.

One in eight drivers in the U.S. is uninsured — a number that will likely grow as your members face increasing financial hardships. Given that, as well as many unanswered questions about what will happen with the U.S. and world economy, making sure your credit union’s auto and mortgage collateral is properly insured is essential. It’s part of protecting your institution, as well as protecting your members, both now and in the future.

The question is: What is the fairest, most efficient way to protect both while also best caring for your members and creating the best possible member experience?

Having partnered closely with credit unions of all sizes, all around the country, for almost half a century, it is our experience that collateral protection insurance (CPI) stands out as the clear answer — IF it is part of a well-run, well-managed program.  

Some insurers may suggest that blanket insurance is the way to go to avoid member noise, and it may seem so on the surface — but there’s more to how it affects your members’ experience than meets the eye at first glance.

Who Should Pay?

Your members are the owners and primary stakeholders of your credit union, and most of them do comply with the promise they made to maintain insurance on the car or home they financed. But with a blanket policy, ALL members — those who keep their property insured and those who don’t — bear the cost. Depending on your location that might happen directly or indirectly, but either way, the cost is shared by all members. Our philosophy — one we feel best fits the value system credit unions stand for — is that serving the greatest good means taking care of your membership as a whole and keeping costs as low as possible for the majority while still providing adequate protection for all.

But What About Member Noise?

With a well-run CPI program using state-of-the-art automation that updates insurance data in real time, members only hear from the provider when there is no proof of insurance in place. The vast majority of members will never receive a notice or even be aware the program exists. 

Even those who haven’t provided insurance information, or those whose information is incorrect or insufficient, receive multiple chances to correct the deficiency before a policy is placed. And again, with a well-run program, it is exceedingly easy for members to submit, through multiple channels, with updates recorded immediately.  

When it comes to protecting your collateral, don’t let scare tactics or publicized examples of poorly managed programs make the decision for you — or your members. A well-run CPI program protects not only your portfolio, but also your member experience and the financial health of your credit union.

Learning From Experience — and From Experts

Unpredictable and unprecedented changes in the external environment can bring about unexpected business risks and challenges. The type of major economic shock we’ve seen recently brings with it an increased recognition that risk is something that must always be kept in mind and a renewed focus on identifying and planning for it.

In the upcoming weeks and months, we will be sharing resources and information about many areas of concern to credit unions in these volatile times. Topics will vary, depending on what pressing needs may be in the moment. Some will have little to do with the products and services we offer — they will be presented simply for the purpose of offering assistance you need to navigate what’s happening.

Be on the lookout for more resources to come, including topical information and advice developed in conjunction with our industry partners Filene Research, Callahan & Associates, and more. In the meantime, please stay safe, and let us know how we can help you and your credit union not only survive but thrive in the unpredictable days and months ahead.


State National is a CUES Premier Supplier Member.

Trace Ledbetter

Trace Ledbetter

Trace Ledbetter is Executive Vice President at State National Companies, where he directs and oversees delivery of all services and products for Lender Services, including customer relationship management, underwriting, and claims. Web: https://www.statenational.com Details