The financial services industry is continuously evolving, and it is essential to optimize collections strategies to maintain liquidity and minimize risk. One of the most critical choices for credit un...
With delinquencies expected to increase as government stimulus funds dry up, financial intuitions’ net interest margins will likely continue to be squeezed. As new car sales improve, 2022 should be a solid year for collateral protection insurance (CPI).
Delinquencies
Virtually every lender expects deterioration in their loan portfolios with the end of federal government stimulus programs and borrower savings rates already showing signs of declining. Insurance coverage levels will likely deteriorate as well. As such, lenders should be looking to shore up their risk mitigation tools. Coupled with higher valuations (particularly for used cars), CPI will be an important tool for protecting assets.
Tighter Interest Margins
Lenders will likely grapple with tighter interest margins and increasing delinquencies in 2022, leading to challenges to their bottom lines. Products like traditional and hybrid CPI are expected to be more attractive than self-insurance alternatives. Charge-offs in self-insurance approaches will probably go up in 2022, prompting lenders to consider increasing their loan loss reserves.
Auto Sales Outlook
Supply chains for auto manufacturers will continue to improve throughout 2022. It will likely take most of 2022 and early 2023 to fully resolve supply chain issues. As they get resolved, the pent-up demand for new cars should result in solid 2022 and very strong 2023 new car sales. The result will be an improving market for CPI over the next two years.
Loss Ratios
With mobility increasing across the entire country, currently low levels of insurance loss on vehicles will go up. However, they are not likely to reach pre-pandemic levels as more Americans will continue to work from home. With inflationary forces making vehicle repair and replacement more and more expensive, there could be pressures on CPI providers to increase rates in 2022.
Conclusion
Your auto loan portfolio can be your organization’s biggest liability. With a loan portfolio of any size, verifying and tracking insurance can be burdensome. That’s where SWBC’s CPI program can help reduce your financial institution’s portfolio risk. As part of our Total Solution suite of services focusing on risk management, payments, and income generation, our CPI programs address a variety of lending risk strategies for financial institutions of all sizes.
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LendingBlake Hastings
Blake Hastings joined SWBC as Senior Vice President of Corporate Strategy and Chief Economist in July 2021. In this role, he provides leadership in the areas of corporate development and long-term growth strategies. He also supports our business development goals and activities by leveraging external relationships in both the public and private sectors. Additionally, Blake provides direction in the assessment, evaluation, and management of risk throughout the organization. Prior to joining SWBC, Blake worked for the Federal Reserve Bank of Dallas for over 14 years. He served as a Senior Vice President overseeing the San Antonio and El Paso branch offices.
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