Smart credit unions seek to produce robust non-interest income (NII) on the direct side of the house with significant yield over what they currently earn in the investment arena.
For many, a successful approach is to offer auto loan protection products such as Vehicle Service Agreements (VSA) and Mechanical Breakdown Insurance (MBI). According to a Callahan poll earlier this year, 84 percent of credit union executives surveyed listed VSA/MBI as a “Top NII Source By Value To Members.” VSA/MBI programs generate significant income on auto loans while protecting your credit union’s collateral (e.g., reduced risk of repossession due to a member’s inability to pay for unexpected, high-cost repairs).
However, identifying the best long-term partner for your credit union and your members can be tricky. Notice I use the term “partner” instead of “vendor.” A vendor merely sells things; a partner helps you find the best process and approach for your specific needs. You’ll find a multitude of products and providers in the market — but not all are created equal. Some vendors will fight for your business, and then disappear once the contract is signed — or until it’s time to re-contract. If you’re serious about generating a steady, growing stream of VSA/MBI-based NII at your credit union, it’s important to build a relationship with a firm that understands your credit union and its culture. Finding a professional services partner with a proven track record in the credit union community is even better.
We have identified three key questions to ask potential service partners, the answers to which will help you select the optimal VSA/MBI program for your members’ needs:
What are the terms and conditions?
Not all VSA/MBI products are designed the same. As with any insurance or warranty product, the contract details determine payment terms following a claim. Always double-check the coverage assertions made by the sales representative. This will help avoid frustration among your members, as well as loyalty-sapping crises come claims-time. Carefully review the contract provisions to clearly understand exactly what will — and will not — be covered. Specifically, pay close attention to:
Wear and tear coverage: Look for quality plans that cover wear and tear for all plan types, not just premium products. Often, the best plans will include coverage for repair of vehicle parts beyond the manufacturer’s tolerance. But buyers beware: the cheapest plans on the market may not offer this broad, member-friendly coverage.
Diagnostic time for covered failure: To identify the root of breakdown problems in most new vehicles today, mechanics rely on a host of high-tech tools that require a fair amount of diagnostics. The time it takes to run these tests can be extensive and expensive, and some basic programs may not provide this coverage. Your members will be pleased to know the product you represent covers not only the repairs, but also the mechanical inspections needed to determine the problem.
Rental coverage: If repairs are going to take some time, your members will need alternative transportation while their cars are in the shop. Make sure the policy provides a minimum $50-per-day rental allowance.
What type of support and experience is included with the product?
The most successful VSA/MBI programs provide comprehensive, consistent and proactive support for the credit union. Most lending departments offer multiple products and services, so staff can’t be experts in all of them. Select a VSA/MBI partner who will serve as your team’s “go-to” expert — a proven, vested-interest provider that offers product-knowledge support in real time, as well as ongoing, customized staff training (including enhanced sales and customer service skills). This helps ensure a consistent, quality product presentation — translating to accurately informed, loyal members.
Some VSA/MBI vendors broker other companies’ products, offering little to no product support. A better choice is to partner with a vertically integrated service provider that creates its own program, directly supports its products, manages its claims, and prices its products across multiple rating groups (often at a significant price break to members).
It doesn’t hurt if your partner offers a way to actually provide products to your members the same way your Loan Officers or MSRs would if they had the time or expertise. At IWS, we have worked hard to develop this type of solution, and feedback from our clients tells us it works. According to client Vystar: “IWS provides our members with the same level of high quality member service that we expect from VyStar’s employees.”
Whether your credit union chooses the most affordable or the most comprehensive product offered, it is vital to select a provider that will be there for your members when it counts the most.
What is the provider’s track record of member service?
Credit unions are known for high-level member service. Shouldn’t your VSA/MBI partner be the same? Ideally, the service provider you choose delivers programs designed by credit union professionals, exclusively for the credit union channel. Seek a partner that has an experienced, enthusiastic, member-friendly staff; offers convenient service hours (including after-hours and Saturdays); and is responsive to your members’ questions — from components covered to the repair process. This will help ensure a positive, after-the-sale service experience for your members.
What does this mean for credit unions?
VSA/MBI programs are proven to increase credit unions’ non-interest income. Anyone can choose a VSA/MBI vendor. But answering these key due-diligence questions can
help ensure you choose a real partner for vehicle protection needs – a win/win situation for both your credit union and your members.
About the author:
Jim Hawk is President and CEO of IWS, a leading national provider of vehicle protection products exclusively serving credit unions. It is headquartered in Boca Raton, Fla. For more information, visit www.iwsgroup.com.
For a complimentary needs assessment and VSA/MBI service provider comparison, contact IWS at (855) 880.9890.