Most credit unions treat collateral protection as a necessary evil. Here’s how to turn CPI into member-centric risk management that protects both loans and lives.
Credit unions lost billions of dollars on auto loan charge-offs over the last few years as used car values whiplashed, repossession costs climbed, and insurance gaps widened. At the same time, members feel more financially fragile than ever.
Here’s the thing about collateral protection insurance (CPI): done poorly, it creates member frustration and operational chaos. Done well, it quietly stabilizes your loan portfolio, protects members from disaster, and gives your teams back hours every week.
Michael Dippo, SVP of Lender Placed Auto at SWBC, put it simply:
“Credit union members are not just borrowers or customers; they’re more than that.”
That mindset is exactly where collateral protection needs to live—especially for credit unions using AI and data to move toward truly member-centric banking.
This article breaks down how modern CPI programs work, where credit unions often get burned, and how to redesign collateral protection around members, not just metal.
Why Collateral Protection Insurance Matters More Right Now
CPI matters because loan risk is rising while member resilience is shrinking.
Over the last few years, credit unions have seen:
- Extended auto loan terms (72–84 months is common now)
- Higher average loan balances on depreciating vehicles
- Volatile used vehicle values after pandemic-era spikes
- Rising delinquencies in certain segments
When a member doesn’t maintain required insurance, the credit union is exposed twice:
- Asset risk – If the vehicle is totaled or stolen, there’s nothing backing the loan.
- Member risk – The member faces a financial hit they may never recover from.
CPI is meant to bridge that gap:
- Track whether required insurance is in place
- Place coverage when it isn’t, to protect the lender’s interest
- Return to normal once the member’s own coverage is reestablished
The problem? Older CPI models were often reactive, manual, and member-unfriendly. That’s where modern platforms, AI, and a member-centric mindset completely change the experience.
What Member-Centric Collateral Protection Really Looks Like
Member-centric collateral protection treats CPI as risk management plus financial care, not just a compliance checkbox.
A healthy program has three pillars:
1. Accurate, proactive insurance tracking
The foundation is simple: you can’t protect what you can’t see.
A strong CPI platform will:
- Ingest data feeds from multiple insurance carriers
- Read declarations and updates automatically (often with AI/OCR)
- Flag true lapses instead of flooding staff with false positives
That means fewer unnecessary letters, calls, or CPI placements—and fewer surprised, angry members. I’ve seen credit unions cut manual insurance tracking workload by more than half just by cleaning up this layer.
2. Thoughtful communication, not "gotcha" notices
Most members who let coverage lapse aren’t trying to game the system. They’re:
- Between jobs
- Facing rising insurance premiums
- Confused about coverage requirements
A member-first CPI program builds a communication ladder:
- Gentle early reminders: SMS, email, app notifications with plain-language explanations
- Clear next steps: what’s required, deadlines, who to contact
- Real support: humans available to help members understand their options
This is where credit unions can use AI-powered outreach to time messages better, personalize content, and predict which members are likely to need extra help before a lapse becomes a loss.
3. Fair, transparent placement and cancellation
Lender-placed coverage has a bad reputation when:
- Pricing feels punitive
- Coverage is confusing
- Cancellation and refunds are slow
Member-centric CPI flips that:
- Pricing is explained clearly as protection of the credit union’s interest—not a replacement for full personal coverage
- Statements and notices show how to get back to standard coverage quickly
- Once members prove they have adequate insurance, coverage is removed promptly and charges are adjusted
The standard for credit unions should be: If a member did the right thing and restored coverage, they shouldn’t be punished for the gap.
Key Trends Shaping Auto Loan Risk for Credit Unions
To design a smart collateral protection program, you have to understand what’s happening in the auto market and with member behavior.
Rising vehicle prices and longer terms
New car prices jumped sharply from 2020–2023, and although they’re finally softening, many members are still carrying high balances on aging vehicles. Pair that with 72- or 84-month terms and you’ve got:
- Longer exposure for the credit union
- More time for insurance lapses to occur
- Higher loss severity if a vehicle is totaled late in the loan
That makes tight insurance tracking and timely CPI placement a lot more critical than it was a decade ago.
Higher insurance premiums and more lapses
Auto insurance premiums have risen sharply across many states due to repair costs, medical inflation, litigation, and severe weather claims. When members get hit with a 20–30% premium increase at renewal, some:
- Let coverage lapse
- Reduce coverage below the required level
- Shop frantically and create gaps between policies
You can’t control the insurance market, but you can:
- Use outreach to nudge members ahead of known renewal windows
- Offer insurance referral partners or education to help them find affordable coverage
- Use CPI as a temporary safety net, not a permanent substitute
Digital expectations and operational strain
Members expect to:
- Upload proof of insurance from their phone
- Get real-time confirmation that you received it
- See status updates in online banking
On the back end, your lending and member service teams can’t afford to:
- Manually review every declaration page
- Chase documents via phone and paper mail
- Spend hours reversing CPI charges after the fact
Modern CPI platforms, often powered by AI, handle much of that grunt work automatically—if you choose a partner and process that align with your credit union’s service standards.
Designing a CPI Program That Actually Feels Member-Centric
A member-centric collateral protection strategy doesn’t happen by accident. It’s the result of intentional design and ongoing calibration.
Here’s a practical framework I’ve seen work well for credit unions.
Step 1: Define your member experience standard
Start by answering a simple question: If I were the member, what would feel fair and respectful?
Translate that into specific policies:
- How much notice should a member get before CPI is placed?
- What channels will you use (SMS, email, app, mail)?
- How will you explain CPI charges and coverage?
Document this standard, then hold your CPI provider and internal teams to it.
Step 2: Map the lifecycle from application to payoff
Walk through the full auto loan journey:
- At application – Do you clearly explain insurance requirements and consequences of a lapse?
- Post-funding – Are you validating initial insurance quickly and accurately?
- Mid-loan – How do you handle renewals, lapses, and changes in coverage?
- Near payoff – Are you still tracking appropriately or over-communicating as balances fall?
Look for friction points:
- Calls where members say, “I sent that weeks ago.”
- Repeated CPI placements on the same account
- Charge-offs where there was no insurance at the time of loss
Each friction point is either a data problem, a process gap, or a communication failure—all solvable.
Step 3: Use data and AI to target support
AI isn’t just for chatbots. It can help you:
- Identify members most likely to lapse based on past behavior, payment patterns, and external data
- Prioritize proactive outreach for higher-risk, higher-balance loans
- Tailor messaging based on a member’s engagement history and channel preferences
For example, you might:
- Send a personalized reminder two weeks before a member’s typical renewal month
- Trigger an in-app banner when they log in, showing their insurance status
- Route complex or repeated issues to your most experienced agents
The goal is precision, not volume—fewer, smarter touches that actually help.
Step 4: Align risk, compliance, and member advocacy
The strongest CPI programs come from cross-functional alignment:
- Risk focuses on protecting the balance sheet and setting thresholds
- Compliance ensures letters, notices, and fees meet regulations
- Member experience scrutinizes tone, timing, and clarity
Most credit unions overweight risk and compliance, and underweight member experience. Flip that balance a bit and you’ll usually see fewer complaints and more stable loss performance.
Turning Collateral Protection Into a Relationship Builder
When members get a surprise CPI charge, they rarely say, “Wow, I love my credit union more now.” But that doesn’t mean collateral protection has to be a relationship killer.
Used well, CPI can actually reinforce your promise to look out for members’ financial wellbeing.
Here’s how to make that shift:
- Train frontline staff to explain CPI confidently in plain language
- Treat every insurance lapse as a chance to educate, not scold
- Offer budgeting and insurance education resources alongside notices
- Review member complaints monthly and change policies instead of just waiving fees case by case
The message you want members to feel is: “Our credit union made sure my loan—and my finances—were protected, even when life got messy.”
That aligns with what leaders like Michael Dippo emphasize: members are more than borrowers. Collateral protection should prove that.
Where to Go Next If Your CPI Program Feels Outdated
If your team is:
- Constantly cleaning up CPI-related complaints
- Buried in manual insurance tracking work
- Unsure whether your current program actually reduces loss
…then it’s time for a review.
Use this 7-question quick check with your existing program or potential partners:
- How accurate is our current insurance tracking, and how do we measure it?
- How many member complaints did we receive about CPI in the last 12 months?
- What’s our average timeline from lapse to coverage placement?
- How fast do we reverse charges when proof of insurance is provided?
- Can members self-serve (upload, check status, get answers) digitally?
- How do we use data and AI to proactively support at-risk members?
- Does our reporting clearly show loss reduction versus program cost and member impact?
If you don’t like the answers, that’s not a failure. It’s an opportunity to build a collateral protection strategy that actually matches your credit union’s values and member promises.
As the auto market keeps shifting and member expectations rise, the credit unions that win will be those that treat risk management as part of member care, not as a necessary evil hidden in the back office.
Collateral protection insurance is one of the clearest tests of that philosophy. Use it to prove that when you say members come first, you mean it.