CPI Insurance: 3 Things You Need to Know

Collateral Protection Insurance (CPI) is an essential component of asset protection for lenders seeking to safeguard their vehicle portfolios. 

HUB Financial Services CPI insurance policies are carefully designed around a sophisticated borrower insurance tracking system. When a vehicle loan is not adequately insured, CPI issues a lender-placed insurance policy to cover against physical damage and other perils to the vehicle.

In today’s dynamic market, lenders need to protect their collateral more than ever. For lenders offering vehicle loans, CPI Insurance is a worthy consideration as inflation continues and recession looms. 

Data indicates defaults increase during volatile markets. Additionally, unforeseen events such as accidents, thefts, or natural disasters can pose significant financial risks. That’s where Collateral Protection Insurance (CPI) comes into play. 

In this blog post, we’ll dive into the world of CPI insurance, exploring how it works and why it’s essential for safeguarding vehicle collateral.

What is CPI Insurance?

Collateral Protection Insurance, or CPI insurance, is a type of coverage designed to protect lenders and borrowers in case a borrower’s collateral (in this case, a vehicle) is damaged, stolen, or totaled. It acts as a safety net, ensuring that the lender’s interests are safeguarded and the borrower remains financially secure in unforeseen circumstances.

How Does CPI Insurance Work?

When a vehicle is financed, the lender typically requires the borrower to maintain comprehensive and collision insurance. However, if the borrower fails to maintain this coverage or lets the insurance lapse, the lender has the right to protect its interests by force-placing CPI insurance on your vehicle. 

Force-placed CPI insurance ensures the lender’s investment is covered, even when a borrower doesn’t have adequate insurance.

Key Features and the Importance of CPI Insurance

Comprehensive Protection: CPI insurance covers a wide range of risks, including theft, accidents, vandalism, and natural disasters, giving lenders peace of mind knowing their collateral is adequately protected.

Mitigating Financial Risk: CPI insurance is very low cost for the lender and helps to reduce walk-aways and repossessions.

Ensuring Compliance: When the need to force-place CPI insurance arises, lenders can ensure they are compliant with HUB Financial Services’ Insurance Tracking system. 

1. CPI Insurance Protects Lenders and Vehicle Owners with Comprehensive, Continuous Coverage

Collateral Protection Insurance, commonly known as CPI, is a type of coverage that safeguards lenders and borrowers in the event of damage, loss, or liability related to collateral. It acts as a safety net, ensuring that the lender’s interests are protected and the borrower is able to keep the vehicle when their other insurance lapses. A CPI certificate is only placed after the borrower fails to prove they have a policy on their vehicle.

Comprehensive Protection: CPI insurance offers coverage for a wide range of risks, including accidents, theft, vandalism, and natural disasters. This comprehensive protection helps mitigate the financial impact on both lenders and borrowers.

Continuous Coverage: When a borrower’s traditional insurance policy lapses or is insufficient, CPI insurance steps in to maintain protection, minimizing the risk of exposure for both parties.

2. CPI Was Highly Regulated in 90’s and Now Has Three Decades of Effective Use by Lenders

Over thirty years ago, a series of class-action lawsuits aimed to reduce the use of CPI insurance by lenders. This led to much stricter compliance requirements eventually being implemented by 1997 – aimed to ensure lenders could protect their investments without the risk of class-action litigation. 

When the National Association of Insurance Commissioners (NAIC) introduced the CPI Model Act in ‘97, it enabled lenders to use Collateral Protection Insurance with new restrictions.

Though many boards chose not to use the tool due its somewhat complicated nature, the introduction of the CPI Model Act enabled lenders to protect themselves in a legal and compliant way.

Companies like HUB Financial Services designed highly sophisticated tracking tools to meet (and exceed) compliance requirements, triggering a steady revival of CPI Insurance for lenders. It takes the complicated element out of the equation, helping the vehicle owner stay compliant and the lender protect their loans without regulatory risk.

3. Compliant, Effective CPI Solutions Focus on Tracking

At its core, the issue with CPI back in the 90’s was tied to poor communication. It’s the lender’s job to clearly and repeatedly inform the vehicle owner that proof of insurance has lapsed. To do this, lenders must not only track those policies but keep scrupulous documentation on their communication before a force-placed policy can be issued. 

Now, lenders typically outsource the tracking and placement of CPI insurance to an insurance tracking company like HUB Financial Services. The tracking element is key, and requires consistent attention. Modern insurance tracking systems are not all the same. In fact, our CPI program uses a Borrower-Centric approach, which tracks our clients’ borrowers so efficiently that we have a 100% positive implementation rate.

HUB Financial Services offers a centralized solution for protection insurance for auto lenders. CPI insurance coverage is just a part of the many services we provide. Most auto lenders also appreciate the added coverage possible with Vendor Single Interest Insurance, or VSI.

• VSI offers its own set of benefits that auto lenders can rely on when borrower insurance coverage seizes.
• VSI Insurance is used by large, indirect lenders as well as smaller banks and credit unions throughout the USA. 
• VSI Insurance has passed the scrutiny of the CFPB and other regulators, and is legal in all states.

Conclusion

Collateral Protection Insurance (CPI) plays a crucial role in protecting the interests of both lenders and borrowers. Understanding the key aspects of CPI insurance and our tracking solution empowers lenders to make informed decisions, enhancing overall financial security and fostering successful lending relationships.

For more information on the whole suite of services that HUB Financial Services offers, please contact us today.