Collateral Protection Insurance (CPI) is insurance used by lienholders to protect themselves from financial loss. CPI is also known as force-placed insurance because this type of insurance is not sold to a customer, however, it can be placed on a vehicle when the borrower does not have physical damage (comprehensive and collision) coverage.
Each customer who buys a vehicle must sign a Point of Sale (POS) letter. This letter is an agreement that consists of the borrower agreeing to purchase and maintain insurance coverage, including comprehensive and collision coverage.
This agreement also requires the borrower to list the lending institution as a lienholder on the policy. If the borrower fails to honor this part of the agreement, the lender turns to a CPI provider to protect its interest against losses.
Point of Sale CPI Placement 7-14 Days After the POS
Collateral Protection Insurance can be placed when the insurance policy is not active. The lender is not allowed to place CPI when the loan is originated. Because of this, the lender allows the borrower to shop insurance for 7-14 days and will place CPI at that time if the borrower does not provide proof of insurance during this time period.
In some cases, the lender will charge a deposit for CPI before the borrower leaves with the car so if the borrower does not show proof of insurance during the grace period, the deposit will convert to the first CPI payment and the CPI policy will start when the loan was originated. The borrower is covered with CPI while they are shopping insurance, so if an accident occurs, the deposit will convert to the first payment for the CPI.
If the borrower provides proof of insurance within the 7-14 days, the lender will return the deposit. At the end of this 7-14-day grace period, the CPI provider will mail a document called the Second Letter with the CPI certificate to the customer.
CPI Placement During the Loan
If the borrower’s insurance cancels during the loan, the lender will place CPI from the moment the borrower’s insurance policy was inactive. The lender will mail a document called the First Letter (or mid-term letter), which will explain that the borrower’s insurance is canceled and the borrower has 7-14 days to purchase and show proof of active insurance.
If proof of insurance is not provided during this grace period, the lender will place CPI. The CPI provider will then mail the Second Letter and CPI certificate.
Collateral Protection Insurance Compliance
The CPI management process can be very complex due to each state having different regulatory requirements. The lienholder has limited visibility and awareness of the insurance statues for each state, which increases the possibility of a compliance breach.
The lienholder depends on the CPI provider to control and manage compliance risks. Currently, CPI providers do not have the software or technological capabilities to manage and control the CPI process.
How Verifacto Can Help
Verifacto’s Collateral Protection Insurance software has the capability to monitor, control, and automate the entire CPI process. This software is integrated with insurance tracking, which enables CPI automation and increases compliance with minimal effort. Verifacto’s software also monitors the CPI insurance company’s process and compliance providing full visibility to the lienholder on every task that is performed by the CPI provider.
Give us a call at 678-783-8123 or email us at email@example.com to try a free demo today.