AI, Auto Loan Risk & Collateral Protection for CUs

AI for Credit Unions: Member-Centric Banking••By 3L3C

Collateral protection, AI, and auto loan risk management can work together to protect both your portfolio and your members—without wrecking trust.

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Credit unions lost billions on auto loans during the rate run‑up and used car price whiplash of the last few years. Most of that pain didn’t come from bad members. It came from thin margins, sloppy insurance tracking, and collateral that wasn’t actually protected when things went sideways.

Here’s the thing about collateral protection: when it works, nobody notices. When it fails, your charge-offs spike, collections get ugly, and member relationships suffer.

This article is part of the AI for Credit Unions: Member-Centric Banking series. We’ll take the core idea behind Michael Dippo’s work at SWBC—protecting lenders and borrowers through smarter collateral protection insurance—and show how AI can turn CPI from a reactive, member-frustrating afterthought into a proactive, member-centric risk strategy.

Why Collateral Protection Has Become a Strategic Issue

Collateral protection used to be a back-office compliance task. Now it’s a margin and member trust issue.

Auto loans are still one of the biggest lines on most credit union balance sheets. At the same time:

  • Vehicle prices jumped more than 30% from 2020–2023, then softened
  • Delinquencies on auto loans climbed, especially for lower FICO bands
  • Repair costs, parts, and labor inflation pushed claim severity higher

When members don’t maintain insurance, or when policies quietly lapse, your loan risk management model breaks. You’re holding unsecured exposure while pricing as if the asset is protected.

Michael Dippo, SVP of Lender Placed Auto at SWBC, spends his time in that exact gap: making sure collateral really is protected and that CPI programs serve both the credit union and the member.

“Credit union members are not just borrowers or customers; they’re more than that.” – Michael Dippo

If you take that seriously, your collateral protection program can’t just be about plugging losses. It has to protect your member’s financial health too.

What Collateral Protection Insurance Actually Does for a CU

Collateral Protection Insurance (CPI) is straightforward on paper: when a member doesn’t maintain required insurance on an auto loan, the credit union can place coverage that protects its interest in the vehicle.

But in practice, CPI touches almost every part of your operation:

1. Protects your balance sheet

At the core, CPI reduces loss severity when:

  • A member totals a vehicle without adequate insurance
  • A repossessed vehicle sells for less than payoff
  • A loss occurs during a lapse in coverage

Instead of taking a full write-off, the CPI policy can reimburse part or all of the outstanding balance related to your interest in the collateral.

2. Stabilizes auto portfolio performance

Well-run CPI programs can:

  • Lower net charge-offs on secured loans
  • Make loss performance more predictable
  • Allow for more competitive pricing on certain risk tiers

That predictability matters if you’re trying to grow auto, refinance members out of high-rate dealer paper, or compete in indirect channels.

3. Creates a member experience risk—if mishandled

Traditional CPI programs have earned a bad reputation when they:

  • Place coverage late and retroactively, surprising members with big balance increases
  • Communicate poorly (confusing letters, jargon, unclear timeframes)
  • Fail to recognize valid coverage in time

You’ve probably seen it: a member who’s done everything right feels “punished” by a CPI charge because the tracking process lagged. That’s a trust killer.

So the real challenge is this: How do you get the protection benefits of CPI without burning member goodwill? That’s where AI and a member-centric mindset change the game.

How AI Fixes the Weakest Links in CPI and Loan Risk

AI doesn’t replace CPI. It makes CPI smarter, faster, and less painful for members.

In a typical manual or legacy setup, insurance tracking looks like this:

  1. Member provides proof of insurance at loan origination
  2. Staff keys in data or outsources document review
  3. System checks for renewals on a lag
  4. Notices go out when coverage can’t be verified
  5. CPI is placed after multiple failed attempts

Every step has friction, delays, and room for error. Here’s how AI for credit unions changes that.

AI for insurance tracking

AI-powered document recognition can pull key data out of declarations pages and ID cards automatically:

  • Carrier
  • Policy number
  • Effective and expiration dates
  • Coverage types and limits
  • VIN and named insured

Instead of staff manually reading and keying documents, an AI engine can:

  • Read digital uploads, photos, and even less-than-perfect scans
  • Validate VINs and names against loan records
  • Flag mismatches or gaps instantly

That means faster validation, fewer false lapses, and less back-and-forth with members.

Predictive models for lapse and risk

With enough history, your CU can build or adopt models that predict:

  • Which member segments are most likely to let insurance lapse
  • When during the loan term lapses are most common
  • How lapse risk correlates with credit tier, LTV, loan type, and payment method

Then you can:

  • Reach out before a likely lapse with friendly reminders
  • Offer support, such as budget coaching or referrals to affordable coverage
  • Adjust CPI triggers and workflows based on real risk, not one-size-fits-all rules

This is where member-centric banking gets real: you’re not waiting for failure, you’re helping members stay protected.

Smarter, member-friendly communications

Generative AI can also improve how you talk to members about insurance and CPI:

  • Clear, conversational notices instead of dense, legalistic letters
  • Tailored messages for first-time car buyers vs. seasoned borrowers
  • Omnichannel communication: email, SMS, mobile app messages, mail, and call scripts all aligned

The tone shift matters. Instead of “you failed to provide insurance; we’re placing coverage,” the message becomes, “we haven’t been able to confirm your coverage and want to make sure you’re protected—here are your options.”

Designing a Member-Centric CPI Strategy with AI

Most credit unions either underuse CPI or treat it as a necessary evil. There’s a better way to approach this: treat collateral protection as part of your member financial wellness strategy.

Here’s a practical framework.

1. Start with a clear member promise

Define what “member-centric collateral protection” means for your CU. For example:

  • You’ll give multiple, clear opportunities to provide proof of insurance before placing CPI
  • You’ll avoid retroactive charges where possible
  • You’ll use plain language to explain coverage, costs, and member options

Put that promise in writing. Share it with your CPI provider and technology partners.

2. Use AI to reduce unnecessary CPI placements

Your first goal isn’t to place more policies; it’s to ensure more members stay properly insured on their own. Use AI tools to:

  • Identify likely lapses 30–60 days in advance
  • Trigger automated, friendly nudges with clear calls to action
  • Offer digital self-service uploads inside online and mobile banking

If AI helps you prevent 10–20% of potential lapses, you’ve:

  • Protected more members from being uninsured
  • Reduced complaints and disputes
  • Still protected your portfolio when CPI is actually needed

3. Make your CPI workflows transparent

Members get angry when CPI feels arbitrary. Use data and automation to make it transparent:

  • Show a “collateral protection” status tile in digital banking: insured, expiring soon, needs attention, CPI in force
  • Provide a simple checklist: what documents are needed, where to upload, when they’ll be reviewed
  • Give real-time or near-real-time status updates as AI validates documents

When members can see what’s happening, they’re less likely to assume bad intent.

4. Align CPI, collections, and financial counseling

CPI shouldn’t live in a silo. Integrate data flows so that:

  • Collections teams see CPI status and claims information in their tools
  • Financial counseling staff know when members are at risk of losing coverage or facing CPI placement
  • Your AI models factor CPI into repayment risk scoring and outreach priorities

Now, instead of reacting to a default, your teams can talk to the member about:

  • Adjusting payment dates
  • Restructuring the loan
  • Exploring insurance options

That’s how you protect both the loan and the relationship.

Practical First Steps for Credit Union Leaders

If you’re leading lending, risk, or operations, you don’t have to rip out your existing CPI program to get started. You can layer AI in.

Here’s a realistic, phased roadmap.

Phase 1: Clean up the data

Before you bring in models, make sure your foundation is solid:

  • Standardize how you capture insurance data at origination
  • Require VIN, carrier, policy number, and expiration date fields in your LOS
  • Centralize insurance data in a place your core, collections, and CPI partner can access

Phase 2: Automate document intake

Introduce AI-driven document capture and recognition for:

  • Insurance proof at origination
  • Renewal documents
  • Member uploads after a CPI notice

Measure:

  • Time from upload to validation
  • Reduction in manual touches
  • Decrease in wrongful CPI placements

Phase 3: Add predictive and communication AI

Once data and intake are under control, expand:

  • Build or adopt a lapse-risk model based on your history
  • Use that model to trigger early, supportive member outreach
  • Deploy generative AI to draft and maintain communication templates across channels

Phase 4: Review and refine your CPI program design

Work with your CPI provider to adjust:

  • Placement triggers and timelines based on actual risk
  • Coverage options and pricing to better match your member base
  • Reporting and analytics so you can track performance at a portfolio and member level

This is where leaders like Michael Dippo at SWBC typically help refine coverage so it supports both financial safety and member trust.

Where Collateral Protection Fits in Member-Centric AI Strategy

Collateral protection might not sound as exciting as AI chatbots or instant loan decisioning, but it’s just as critical to member-centric banking.

Here’s why:

  • It directly affects a major member asset (their vehicle) and a major CU asset (your auto portfolio)
  • It’s one of the few risk tools that can hurt member trust if handled poorly—or build trust if handled transparently
  • It’s a perfect use case for AI: lots of documents, repetitive tasks, clear risk signals, and high impact on both sides of the balance sheet

If your credit union is serious about AI for credit unions, collateral protection deserves a spot near the top of the roadmap.

You don’t need a massive transformation to start. You need a clear philosophy—members first, risk managed intelligently—and partners and tools that support that.

Ask yourself: if a member sat beside you and watched how your CPI program works today, would you be proud of it? If not, this is the moment to rethink how technology, data, and the right experts can help you protect both your collateral and your members.