Why Financial Institutions Should Consider Vendor’s Single Interest (VSI) Insurance for Auto Loan Risk Protection
As financial institutions navigate the evolving risks of auto lending, protecting vehicle collateral has never been more important. One of the most effective yet often overlooked strategies for managing this risk is a Vendor’s Single Interest (VSI) insurance policy. A VSI policy helps lenders safeguard their auto loan portfolios, reduce charge-offs, minimize losses, and streamline loan servicing operations—all without the administrative burden of tracking individual borrower insurance or force-placing expensive Collateral Protection Insurance (CPI).
Whether your financial institution offers direct or indirect auto loans, understanding how VSI insurance works is essential to protecting your collateral and strengthening long-term lending success.
What Is Vendor's Single Interest (VSI) Insurance?
Vendor’s Single Interest (VSI) insurance, also known as Blanket VSI, is a lender-focused insurance policy that eliminates the need to track borrower insurance or force-place CPI after loan closing. While lenders are required to verify and secure proof of insurance at the time of loan origination, ongoing tracking is not required. Once in place, VSI coverage automatically applies to all eligible loans from the moment the policy takes effect.
By choosing a Vendor’s Single Interest policy, lenders ensure their financial interest in vehicle collateral is protected—even if the borrower’s insurance is canceled, not renewed, or allowed to lapse.
This cost-effective alternative to CPI simplifies loan servicing by eliminating the need to monitor policy renewals, issue insurance notifications, or manage force-placed coverage. VSI protects the lender’s interest in the vehicle, supports regulatory compliance, reduces administrative burden, and helps mitigate financial risk.
Typical VSI Policy Coverages Include:
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- Physical damage to the vehicle (e.g., accidents, theft)
- Non-Filing Protection
- Skip losses (borrowers who disappear with the vehicle)
- Repossession-related losses
- Skip & Confiscation or Conversion losses
- Modified ACV (Actual Cash Value)
- Mechanical Breakdown Expense
- Assumption of Coverage
How Vendor's Single Interest (VSI) Insurance Works:
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- The lender originates an auto loan and verifies that the borrower has active insurance at closing.
- At some point during the loan term, the borrower fails to maintain their insurance and defaults on the loan.
- The lender repossesses the vehicle or begins recovery efforts.
- If the vehicle is damaged, missing, or cannot be recovered, the lender may file a claim under the VSI policy.
- The insurance carrier reimburses the lender according to the policy’s loss settlement provisions, up to the stated policy limits.
Benefits of a Vendor's Single Interest (VSI) Policy
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- Automatic Protection Without Insurance Tracking
Blanket coverage applies to the entire loan portfolio, eliminating the need to monitor borrower insurance. Coverage continues until the VSI policy is canceled or non-renewed.
- Protection for Skip and Repossession Losses
VSI helps cover losses when borrowers default or skip, with many providers offering repossession and remarketing support to streamline recovery.
- Reduced Charge-Offs
By reimbursing lenders for losses on damaged or unrecoverable collateral, VSI minimizes financial losses tied to borrower defaults.
- Improved Borrower Experience
Unlike CPI, VSI eliminates insurance notifications and costly force-placed premiums, helping maintain positive borrower relationships.
- Regulatory Compliance Support
VSI programs align with regulatory requirements, helping lenders reduce the risk of non-compliance related to insurance tracking practices and borrower notifications.
- Lower Operational Costs
By eliminating the need for dedicated staff or third-party vendors to track insurance, send notices, and manage force-placed policies, VSI reduces administrative expenses.
- Predictable Premium Structure
VSI policies typically have fixed premiums based on loan volume or outstanding balances, making budgeting and forecasting easier for financial institutions.
- Flexible Coverage Options
Many VSI policies offer customizable coverage limits, deductible options, and endorsements (e.g., skip coverage, repossession fees) to tailor protection to the lender’s specific needs.
Key Features When Considering a VSI Policy
A VSI policy can be tailored to a lender’s needs, making it essential to review and understand the coverage details:
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- Policy Limits: Ensure the coverage amounts match your lending activity.
- Coverages: Confirm your coverages and how they work to avoid surprises during claims.
- Cost: cheapest isn't always better - lower premiums often come with limited coverage.
- Premium Structure: Options based on the monthly outstanding balance or a per-loan fee.
- Claims Support: Partner with providers offering responsive, efficient claims service.
- Compliance Review: Work with experts to confirm that your policy meets applicable state regulations.
Is Vendor's Single Interest Right for Your Financial Institution
A VSI policy is ideal for financial institutions that are:
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- Actively engaged in auto / consumer lending
- Looking to eliminate insurance tracking and streamline loan operations
- Seeking to mitigate risk and protect their financial interest in collateral
- Focused on regulatory compliance and reducing human error
- Interested in reducing borrower friction over insurance notifications and CPI premiums
- Working to lower default rates caused by CPI premiums being added to loan payments
Contact Us to Learn More About VSI Insurance
Interested in protecting your auto loan portfolio with Vendor’s Single Interest policy? Our team specializes in helping financial institutions design tailored risk management programs that reduce losses, improve efficiency, and strengthen lending portfolios.
