Finding the right service provider for Collateral Protection Insurance (CPI) and auto insurance tracking can be a tough task. There are a multitude of regulatory hoops to jump through, and those hoops change fairly often, so finding a provider that stays on top of this ever-evolving landscape is key. For many financial institutions, regulatory compliance is the #1—and in some cases, the only—factor considered when choosing a CPI provider. However, to find a true strategic fit, there are a few other questions you should be asking prospective providers.
1. Are the provider's processes stuck in the ‘80s or ‘90s—letter, letter, issue CPI policy, and then unwind after proof of insurance?
Rather than treat all members the same in a shotgun format, why not target your borrower communications based on their past insurance history? There is technology out there that allows you to score borrowers and set benchmarks that help you determine whether or not the borrower is more likely to have insurance. This technology utilizes information from the credit bureau to predict whether a given borrower is more likely to have the needed comprehensive/collision insurance with 87% accuracy. It bases the prediction on historical data, which as we know is the best way to tell how someone will act in the future.
Borrowers scoring above a certain benchmark can be given more time to provide their proof of insurance, have more automated messages sent as reminders to update their insurance, and generally be treated in a V.I.P. manner because they are more likely have the coverage required by their loan agreement. This has a huge positive impact on reducing borrower noise, maintaining the relationship you have with your borrowers, and increasing loyalty. It also reduces the amount of extra work for your financial institution employees, as you will more than likely not have to go though the process of placing insurance, dealing with calls from agitated borrowers, and issuing refunds.
2. Does the CPI provider offer a monthly alternative to the high annual policies that have been around for decades?
A monthly insurance tracking program is a more borrower-friendly option. It has monthly premiums in the $40 to $90 range, which are fully earned when collected the month after the insurance exposure occurred. And, if the borrower can prove they are carrying the required dual-interest comprehensive/collision coverage, the CPI policy is canceled and fully refunded. If the borrower has an accident, but doesn’t total the vehicle, the vehicle is repaired and no repossession is required.
The result of this method of managing risk is that borrower complaints and refunding activity is drastically reduced and the financial institution is covered if the vehicle is repossessed and damaged just like the much more expensive traditional CPI.
In today's political and regulatory environment, this type of alternative makes a lot more sense than the old-school CPI program.
3. Will the provider's CPI policies actually drive repossessions?
By raising a borrower’s monthly loan payment to cover the cost of CPI premium, some borrowers are forced into voluntary repossessions because they can’t afford the inflated price. If a financial institution adds CPI premium to the loan balance, but only places one or two CPI policies, the institution's internal policy will drive more involuntary repossessions.
In today's world of repossession deficiencies reaching $6,000 to $8,000 on average, an insurance tracking program can have a major impact on your financial institution's bottom line. If you could manage your risk and reduce borrower noise without driving repossessions, wouldn't you want to investigate a monthly CPI program?