Many lenders using Collateral Protection Insurance or a CPI / force-placed type of product for their consumer loan portfolios are unaware of the potential ramifications that they may face if their programs are not administered correctly by the provider. I say “their” programs intentionally because to borrowers the CPI or Collateral Protection Insurance product is your program and to regulators and class action attorneys CPI was your choice to insure your loans - (and guess who has the deepest pockets)?First some general background on r
As new vehicle sales prices continue to rise, many lenders are feeling the pain in the way collateral protection premiums are calculated. Without any action at all on the part of the insurance company or the lender, your borrowers are paying more and more for coverage. The reason? Collateral Protection premiums are based on a percentage of the loan balance. As vehicle prices increase, loan balances are at all-time highs, and in turn, force-placed insurance premiums are higher than ever.
Trust and Relationship
I placed this first intentionally because it is the most important by far. Customers, borrowers, and members want a service provider that is trustworthy and see the bigger picture of a long-term relationship. They will use your products because of the great service you provide, and the value you bring to them as a trusted financial advisor. Good agents and insurance companies operate under the same principles.
Insurance rates in every sector have risen substantially in recent years, outpacing inflation by a good margin. Here’s a look at some of the stats:
Health Insurance costs have gone up by over 20% in the last 10 years
Auto Insurance rates have gone up by more than 30% in the last 10 years
Homeowner Insurance premiums have risen over 40% in the last 10 years
Natural disasters, home prices, and the increased cost of construction have affected homeowner insurance pricing the most. Health insurance premiums have risen due to many factors. Why have auto-related premiums gone up so much? Here are the top 5 reasons why auto insurance rates are going up:
As reported in USA Today, this month used car payments hit a record $400 per month and used car vehicle values jumped over $20,000 for the first time. Higher demand for used vehicles, along with continued inflation in new car pricing and higher interest rates, have pushed payments to their highest level on record in the used car market. Both factors combined have also increased pressure on loan terms, as they now average 66.9 months according to Edmunds, also the highest ever.
Regulation Z or the Truth in Lending Act (TILA) provides a specific carve-out exemption and special treatment for the Blanket Single Interest (or VSI as its commonly called) product for various reasons. Predominantly we believe the regulators knew that a great majority of US banks already use the coverage and it is a growing product in credit unions and other lending sectors, which has provided a great option to protect the loan portfolios of lenders efficiently while keeping the cost to customers to a minimum.
VSI or Single Interest Insurance is a customer-centric, efficient, compliant way for lenders to insure their entire consumer loan portfolio for a small one-time fee on each new loan. There are many advantages of the blanket product as compared to other options such as tracking insurance in-house or outsourcing tracking. VSI allows you to eliminate all insurance tracking and yet still cover all of your collateral without the needless hassles between you, loan officers, borrowers, and insurance companies.
How often do products come along that can significantly change your operation in a positive way? Lenders from all across the country face similar challenges when it comes to balancing budgets, managing workloads, and staffing levels while growing at the same time. Growth is great but means more files, more data, and more work for everyone.
Some vendors in the world of lending ask their customers to sign lengthy multi-year agreements and some also make it difficult to leave the agreement prior to the terms expiring. Read on for more information about negotiating contracts with vendors.
First, you need to read the contract and pay special attention to the following:
- Length of the term
- Terms of exiting the contract early
- Automatic renewals
- Conditions for both parties
To properly answer that question, you have to look at the entire program and the many different parts that are often overlooked. There are four different coverage sections that you should be evaluating:Lender-placed Hazard
Coverage for REO property
Liability insurance for REO property