It is very common for community lenders to acknowledge the shortcomings of insurance tracking and force placing CPI coverage on borrowers. We often hear from community lender executives and collection departments, that even though CPI coverage and outsourced tracking still entails a lot of work and causes a lot of problems, they really don't see any other solution other than switching to another insurance tracker. Many are very excited to find out that there is another option.
Recently the CEO of a very large community lender told me the old, “You can put lipstick on a pig,” story meaning that switching to another CPI provider doesn't really help at all because the same problems exist due to the nature of the product itself, not so much the shortcomings of the actual tracking company. Many believe CPI is inherently flawed because it goes against the classic insurance model of spreading the risk evenly, where everyone pays a small amount for the occasional loss that occurs. CPI starts with adverse selection (borrowers who have no insurance on their own) so its costs run very high which hurts everyone. The CEO was extremely pleased to know that blanket protection, with no tracking and no force placing, is very feasible and very affordable. Tracking providers, unfortunately, have downplayed the viability of Blanket VSI protection over the years and have not let customers know it is even an option.
Blanket VSI protection is becoming more and more common as community lenders decide to think long-term about what is best for them and their borrowers. With blanket protection, your entire portfolio is covered by the policy for common exposures like physical damage on repossessions and skip loss. Often times Blanket protection has coverage enhancements for the community lender over a typical CPI program. Blanket protection brings administrative relief and advantages in many areas:
- All of the work associated with insurance tracking and force placing is eliminated. No more letters, no more calls, and emails and no more expensive force-placed CPI placed on borrowers
- All of the negative interaction with your borrowers over tracking and the high cost of CPI is removed
- With blanket protection, there is no requirement to track insurance at all after loan closing
- Delinquency and charged off premiums caused by high-cost CPI are eliminated
- The tens of thousands of dollars in loan funds used to finance CPI premiums are freed up
- Typical blanket policies provide better skip protection and payout more on total loss claims
- Low or no deductible
- Reduction in administrative time dealing with problems created by the CPI product
More and more community lenders are realizing that the actual risk of an insured loss to the community lender on uninsured borrowers is extremely low. They are starting to ask the question, "Why are we doing all of this work and dealing with all of these issues and borrower complaints over such a small number of troubled loans?" Blanket Insurance on the entire portfolio can be the answer you've been looking for.
Some community lenders tell us that they looked at blanket in the past and it was too expensive. However, they admit that those blanket prices came from their tracking providers. There is a very good chance that you will be surprised by the actual cost of blanket protection when priced through a company that specializes in these protections.
So, can you really stop having someone track your insurance and force placing expensive CPI policies on your borrowers? The answer for almost every community lender is a definite yes. It may be time to talk to a company that specializes in blanket protections and take a look at a product that most community lenders believe is far more borrower-friendly than the CPI force-placed insurance experience of the past. It is extremely rare for community lenders that switch over to Blanket to ever go back to CPI. That speaks volumes.
Check out our blog post: Mitigating Risks by Understanding your Collateral Protection Policy
