Is it time to take another look at your consumer auto loan collateral protection and insurance tracking? More and more lenders have begun to realize the shortcomings and administrative hassles common with Collateral Protection Insurance (CPI) programs using outsourced tracking.
A broad survey uncovered that many lenders do not realize there is an alternative to tracking insurance that provides more coverage, reduces administrative headaches, and is considerably more friendly to members. When it comes to administrative time and costs, most lenders using CPI admit that there are a lot of emails, phone calls, and reports that shuffle back and forth between staff, the tracking company, and members. Many times insurance documents simply cross in the mail between you, local insurance agents and the tracker and your members end up in the crosshairs of the process. That costs your staff valuable time and causes negative interactions with members.
Many CPI programs do not offer skip protection or it is fairly watered-down and ineffective. The purpose of skip coverage is to protect you when a member is not paying and cannot be located. An effective skip product should locate the member and the collateral for you. It should also provide repossession services to secure the collateral as soon as it is found. Another coverage not common to CPI products is an enhanced settlement option called Modified ACV, which pays above book value settlement on totaled or stolen collateral. A CPI policy will pay for the ACV - but you should still consider the gap amount between ACV and your loan balance?
Also troublesome to many lenders is the extremely high cost of Collateral Protection Insurance policies. Most range between 15% and 20% of the balance for an annual policy. A $10,000 loan balance on a used car could cost between $1,500 and $2,000 annually. This high premium severely impacts the loan balance, the customers' payment, as well as exposure on that loan. Subsequently, if the borrower then obtains coverage on their own, the balance and payments must be readjusted in every case. This leads to excessive amounts of valuable staff time spent on administrative work and negative contacts with your member. Is this current CPI process sustainable and desirable? More and more lenders want to work more efficiently and effectively and spend time doing what they do best, helping customers.
If you are using a CPI program, you could be spending a lot of time working for the tracking company to transmit information back and forth about your customers, while 97%-98% of them actually have insurance at any given time. That’s a lot of work for 2%-3% of your loan portfolio. VSI or Vendor's Single Interest eliminates all of that work and gets you back to doing what you do best-- making loans, taking deposits, and servicing your customers in positive and helpful ways, rather than harassing them over insurance lapses that may or may not exist.
More about VSIThe blanket nature of VSI also referred to as Vendor's Single Interest insurance and Lender's Single Interest insurance, protects your entire portfolio without dependency on someone to catch those lapses. VSI also commonly contains the superior Skip coverage and Modified ACV/Gap coverage.
So what is the alternative solution that can solve or eliminate all of these issues? Blanket Single Interest Insurance or VSI as it's commonly called. This solution is spreading across the nation as lenders find out about its advantages. The product has been around since the 1950’s and has become very predominant in the banking industry as more and more lenders are learning that the product is very member-friendly:
- No negative member interaction over insurance issues
- No internal tracking and no outsourced tracking
- No CPI policies forced on your members
In most states, the one-time nominal fee per loan can be passed directly onto the consumer and does not affect APR per Regulation Z. Maybe it’s time to review your current insurance tracking process. You may find superior protection while eliminating all of the negative customer contacts your current process imposes now. Many lenders who have switched to VSI and other blanket products, tell us they are happy they did. Perhaps VSI is an option for you as well. It certainly is the most customer-friendly way to protect your loan portfolios. Allow yourself to be a lender, not an insurance agent. It’s time to check out Blanket VSI.
There are two sister programs to VSI. Blanket Mortgage Insurance, eliminates all tracking on any type of real estate loans including home equities, seconds, 1sts and commercial real estate. In addition, there is a blanket policy available covering equipment loans called Blanket Equipment. Unitas Financial Services is your partner for portfolio protection. Contact us today for a free portfolio review.