Things are changing every day; and by that I mean regulations surrounding a very specific line of business in the financial institution space, lender placed insurance. Simply put, if a borrower does not meet the obligations of maintaining insurance on their home or auto, you as the loan servicer have the option to issue an insurance policy to protect your interests.
Over the last few years, the industry has evolved because of regulations and fines passed down from state insurance departments, Fannie Mae, Freddie Mac, and the CFPB. Most of these regulations were developed to solve problems that have plagued this business for a number of years, including high rates, financial institution commissions, and free or low-cost tracking services. The result of these practices: additional fees for a lender placed policy that customers were responsible for paying, but most likely couldn’t afford.
A few years ago, we decided to be on the “bleeding edge” by developing a lender placed auto product that would address concerns that have been raised on the mortgage side. We created a product with a lower rate of $50 to $90 per month (as opposed to the traditional $2,000 for an annual policy), and we stripped unnecessary coverage being paid for by customer, but only benefitting the financial institution, like skip and premium deficiency. You may be a little shocked by me referring to skip and premium deficiency as unnecessary, but because of the way this new program is structured, the need for those types of coverage is eliminated. We also mandated that there will be NO commissions on this product.
We did all of this with the hope that this product would be viewed by regulatory agencies as a more consumer-friendly approach to protecting your financial institution’s interests when borrowers don’t live up to their obligation (and state insurance requirements) to maintain proper insurance on their vehicles.
Once development was completed, we named the product Hybrid CPI and put it on the market. To our delight, during its first two years, more than 80 clients have found our Hybrid CPI solution to be a beneficial product for their financial institution and their borrowers. We see the momentum building and have very few accounts actually asking for the traditional CPI product.
Since launching Hybrid CPI, we have seen a reduction in our clients’ issues related to sticker shock because the price point of this program is substantially less than traditional CPI programs. We’ve also seen a reduction in repossessions which happen when consumers cannot pay the additional cost of the lender placed insurance. This is a very important component, and ultimately, allows consumers to stay in their vehicles and make their payments on time. In addition, our clients’ cash flow has improved significantly because no one has to “front” the expensive cost of traditional lender placed insurance. All of these factors are important to both the consumer and financial institution.
We are continuing to march down this path because it not only makes business sense for us and our clients, but more importantly, because it is the right thing to do for borrowers in this current regulatory environment.