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Boost Loan Protection Product Sales, Post-Origination

These insurance products are typically sold at origination, leaving untapped potential for post-origination sales.

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By Catherine York Powers, CEO, Constant
June 25, 2024

Credit union executives are searching for innovative ways to enhance non-interest income especially if NSF and return deposit fees are a significant contributor to overall income. An often overlooked area with untapped revenue potential is the sale of loan protection products throughout the entire loan lifecycle. Let’s unpack the opportunity, then talk about how to automate it and pull it into digital banking.

Loan Protection Products, Post-Origination

With regulatory pressure on certain non-interest fees, it’s vital for credit unions to diversify revenue streams. One approach is to tap into loan protection products post-funding. This approach can provide non-interest fee stability amid more scrutinized sources like NSF and return deposit fees.

Credit unions with large indirect loan portfolios often see lower penetration of payment protection products. In contrast, credit unions with smaller indirect exposure achieve higher success rates with these products, though penetration still typically remains below 50% across all products. This presents a significant opportunity to unlock new non-interest fee income. These fee-based products not only diversify income but also deliver concrete benefits to members.

New Auto Insurance From CPI Resolution, Loan Payoffs

CPI often causes friction with members and can lead to delinquency and default. When a loan defaults, credit unions are left covering the premiums they advanced. Shifting CPI resolution to digital banking allows members to be promptly notified about CPI placement and any resulting payment increases. They can also upload their insurance and have any payments made toward CPI reversed, if CPI was mistakenly applied. If the member lacks insurance, the credit union can offer auto insurance options.

This approach transforms a common loan operations task into an enhanced member experience and a new non-interest income opportunity. The same strategy applies to loan payoffs or total loss claims. At Constant, we ask why a member is requesting a payoff. If they select "selling," we direct them to the credit union’s loan options and auto loan insurance products. Similarly, when a member reports a total loss online, we route them to the same offers based on the credit union’s policy.

Introduce New Products That Are Relevant to Members

When specific loan operations workflows are moved to digital banking, credit unions can introduce new products in a way that’s relevant to members. For instance, if a member purchased a new car in the last three months but did not opt for an extended warranty, the credit union could send an offer like: “Congrats! You just made your third car payment. Did you know 30-50% of new car owners purchase mechanical repair insurance to avoid costly repairs?”

Another use case is when members skip a payment. Constant asks if any event in a dropdown list is true. The credit union can display a digital banner and send a push notification to every member who skipped a payment in the last 90 days and selected "higher auto repair costs" as the reason – offering them debt protection.

The core system contains rich data that can be leveraged to introduce new products to members post-origination based on their loan status or actions they take.

Out of the Box Approaches to Common Workflows

Credit unions can drive top line revenue by transforming traditionally viewed cost centers like loan operations into revenue generators. By moving loan operations efforts to digital banking and leveraging data from the core system, credit unions can introduce relevant products post-origination, such as loan protection and auto insurance options. This approach enhances the member experience and opens significant opportunities for non-interest income, contributing to financial stability and growth in this uncertain market.

Connect with Constant to learn more.

About Constant

Constant's executives, experienced in managing billions in retail debt, grew frustrated with legacy core system constraints and manual operations. They boldly transitioned loan servicing from manual to digital self-service, reshaping the operations landscape. Constant’s mission is to empower members to self-serve online and help credit unions grow through meaningful interactions with their members.