Collateral Protection Insurance (CPI) is an essential component of asset protection for lenders seeking to safeguard their vehicle portfolios.
Miniter Group’s 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.
We’ve written many articles on CPI Insurance - most are quite detailed - so today we’re boiling it down to three things you must know in order to efficiently utilize this service and remain compliant:
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 Miniter Group 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 Miniter Group. 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.
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.
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