Collateral Protection Insurance (CPI): What is CPI and what does it do?

Collateral Protection Insurance (CPI): What is CPI and what does it do?

Minimizing Road Hazards With CPI

On the road of life, we all face obstacles — some we can avoid with careful planning, others outside of our control.

In your personal life, minimizing catastrophe may involve wearing a seatbelt while driving, or purchasing life insurance. For financial institutions, there are also ways to avoid known hazards and minimize damage from the unavoidable ones.

One pothole they can easily bypass is risk of loss from damage to uninsured collateral. The most effective method for minimizing this risk is CPI: Collateral Protection Insurance.

A Complex Definition Made Simple

When taking out an auto loan, borrowers agree to maintain physical damage insurance on the vehicle, naming the financial institution as an additional interest on the policy. Unfortunately, not all borrowers will fulfill this agreement, either never purchasing insurance or letting coverage lapse.

That’s where CPI comes in:
CPI is insurance coverage placed on a borrower’s vehicle, on behalf of a lender, when there is a lapse in insurance.

How Does CPI Work?

The Importance of Choosing the Right Protection

An effective CPI program requires a high level of service and monitoring to ensure that every loan in a lender’s portfolio is accurately tracked and updated, and that refunds are swiftly issued when a borrower does comply by purchasing the required insurance.

This kind of real-time tracking and management requires sophisticated technology and expertise, which is why lenders benefit by outsourcing to a provider specializing in it. An ideal CPI provider will also offer borrowers hassle-free, turnkey ways to update their insurance.

More CPI Facts

The fundamental purpose of any insurance program is risk transference. CPI enables lenders to manage and mitigate risk by transferring the risk of uninsured collateral to an insurance provider. Understanding how CPI works will help you choose a provider that is best able to provide the protection and service you need to make your CPI program a success.

Learn more about State National’s risk mitigation solutions for finance companies and specialty lenders

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