Collateral Protection Insurance (CPI) is a cornerstone of risk management for financial institutions. Programs such as CPI, Lender-Placed Insurance, Blanket Mortgage Hazard and Blanket VSI safeguard loan portfolios by ensuring that collateral—whether vehicles, real estate, or equipment—remains protected against physical damage or loss. However, CPI is not a “set it and forget it” solution. Just as underwriting and lending procedures evolve, insurance policies must be reviewed and adjusted to keep pace.
Why Policy Reviews Matter
Financial institutions are continually refining their underwriting standards, adjusting loan limits, and expanding into new markets. If your CPI program hasn’t been reviewed recently, there’s a strong chance it no longer fully aligns with your lending practices. Mismatches between your insurance coverage and your lending procedures can expose the institution to unnecessary risk or compliance gaps.
Key Areas to Evaluate
-
Coverage Limits
As loan balances increase, especially in areas like auto, equipment, or mortgage lending—it’s important to confirm that policy limits reflect your current lending thresholds. Outdated limits can leave gaps where collateral values exceed insurance protection, putting the institution at risk of loss.
-
Eligible Collateral Types
Lending practices often expand into new collateral categories. If your CPI policy doesn’t specifically account for these property or collateral types, you may find yourself unprotected. Regular reviews ensure your program covers the types of assets your institution now finances.
-
Policy Scope and Exclusions
Underwriters design CPI programs with specific coverage terms. Over time, exclusions or limitations may no longer align with your underwriting goals. Reviewing these provisions helps confirm your policy addresses the actual risks within your portfolio.
-
Integration with Loan Servicing Practices
Strong insurance programs should complement your servicing procedures. For example, how borrower coverage is verified, how uninsured collateral is identified, and how quickly force-placement occurs are all areas where insurance and operations intersect. Reviewing both together ensures consistency and efficiency.
-
Regulatory and Auditor Expectations
Examiners expect financial institutions to demonstrate proactive risk management. A CPI program that hasn’t been revisited in years may not meet evolving regulatory or accounting standards. A documented review not only protects the institution but also signals to auditors that management is attentive to risk.
The Bottom Line
Collateral Protection Insurance is a valuable tool, but its effectiveness depends on alignment with your institution’s underwriting and lending practices. Regular policy reviews allow you to confirm limits, coverages, and procedures still fit your current portfolio strategy.
At Unitas Financial Services, we partner with institutions to evaluate CPI programs, identify coverage gaps, and ensure policies are tailored to today’s lending environment. A proactive review today can prevent costly surprises tomorrow
Contact our team today to explore risk management solutions tailored to meet your needs.