It is a true (and obvious) statement to say that collateral protection practices aim to protect your financial institution from risks related to your outstanding loan collateral. What is also true is that collateral protection practices should aim to protect your consumers from collateral related risks.
Adopting a collateral risk management strategy that keeps your consumers at the forefront will help safeguard your financial institution, while also ensuring you maintain a healthy, happy relationship with your consumers.
If you choose to not take a consumer-centric approach, you risk losing consumers to a growing list of competitors who are hungry for opportunities to steal them away.
Let’s take a look at three key practices that should surely help your institution sustain a well-rounded, consumer-friendly collateral risk management program.
1. Track insurance on all outstanding loan collateral.
Tracking insurance is absolutely essential to protecting your institution and consumers in a compliant, consumer-friendly way.
If you are not currently tracking your insurance, start!
Here are some of the key benefits to adopting a strong insurance tracking program:
- Reduce consumer aggravation and compliance concerns.
- Issue refunds to lenders and consumers much more quickly and accurately.
- Vastly reduce the number of lender-placed insurance policies on properly insured loans.
- Receive timely assessments of exposure risk relating to any given catastrophe or natural disaster.
- Receive valuable insights on the location and status of a delinquent loan's collateral and borrower.
If you are tracking insurance, consider optimizing these practices to improve the efficiency and effectiveness of claims handling processes. 70% to 75% of our repossession claim recoveries are achievable due to the information obtained from advanced insurance tracking practices. The information is used to:
- Eliminate costly errors related to total loss valuations and settlements.
- Improve negotiations with insurance carriers.
- Protect our clients on claims where their collateral is repairable.
- Arm consumers with information to aid their total loss negotiations.
- Reduce the time it takes to issue a Letter of Guarantee.
Strong insurance tracking practices are the most effective tools for protecting outstanding loan collateral, in a compliant, consumer-friendly fashion. So if you aren’t employing these practices, it’s important you start right away.
Learn more about how you can adopt insurance tracking practices that strengthen your overall business goals enterprise risk management strategy.
2. Take a consumer-centric approach to collateral risk management.
The primary purpose of a collateral protection program is to monitor and mitigate risk. Your program’s services should focus on protecting your outstanding collateral while at the same time maintaining a positive and effective line of communication with your consumers. It is not necessary to sacrifice consumer relationships when building a strong collateral risk management strategy.
Sustaining a collateral protection program that effectively monitors and mitigates loan risk while servicing consumers is quite doable, if you adopt the following practices:
- Offer fair premium rates to consumers to help them maintain adequate coverage.
- Work toward eliminating unpleasant consumer experiences.
- Practice refund processing that is quick, consumer-friendly and compliant.
- Deliver insurance verification notifications that are executed strategically.
- Open up additional avenues for consumers to verify their insurance.
- Maintain a positive and effective line of communication with consumers.
- Measure and review performance metrics to gauge the success of your collateral protection strategies.
Strong collateral protection programs should adapt and evolve based on the wants and needs of your consumers while at the same time sustaining the health of your loan portfolios.
3. Protect against undervalued total loss claims on outstanding collateral.
Unfortunately, accidents will happen and there is little-to-nothing you can do to prevent them. But what you can do is take action to help ensure you and your consumers get the most out the claims after these accidents occur.
In my personal experience, roughly 25% to 35% of vehicle valuations performed by insurance companies are undervalued. With most borrowers accepting their insurance company’s first settlement offer, they are potentially cheating themselves (and your institution!) from receiving a larger settlement payout.
So what can you do to reduce undervalued total loss claims?
- Inform your borrowers of their right to negotiate any insurance settlement with their carrier, since many are not aware of this fact.
- Perform in-house or outsourced evaluations of the retail value of your vehicles to verify the accuracy of the value provided by the insurance carrier and to arm your borrowers with better tools to negotiate the insurance claim.
- Maintain copies of the dealer spec sheets for all of your direct and indirect loans so you have the tools to negotiate the vehicle’s specs and value with the insurance companies.
Visit our Vehicle Collateral Protection Insurance (CPI) product page to learn more about this program.
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