The factors above have created an increasingly precarious financial situation for consumers. Both 30- and 60-day delinquencies have surpassed pre-COVID levels, and the Consumer Finance Protection Bureau (CFPB) reports the percentage of auto loans transitioning into delinquency is rising at an accelerated rate. This is evident particularly among non-prime and subprime borrowers, whose delinquency rates are now surpassing even 2009 levels. Even prime borrowers are feeling the pain, with their share of repossessions doubling. Repossession companies are seeing a spike in business, especially for vehicles purchased in 2020 and 2021. Unless the risk from these rising auto delinquencies and repossessions is mitigated, lenders may see increased charge-offs and a negative impact on overall financial performance.
The Importance of Collateral Protection — Especially in a High-Delinquency Environment
Collateral Protection Insurance (CPI) is a product that helps financial institutions such as banks, credit unions, and finance companies mitigate risk and protect themselves from the financial loss that can result from a borrower's failure to maintain the required insurance on a financed vehicle. CPI covers the lender's interest in the vehicle and can help prevent charge-offs in the event of a borrower's default.
When a borrower finances a vehicle, most lenders require them to maintain insurance coverage on the vehicle throughout the life of the loan. This insurance coverage protects the lender's interest in the vehicle in case of damage or loss, so if the borrower fails to maintain the required insurance coverage, the lender is at risk.
CPI is an important component of an auto lender’s risk mitigation strategy. By providing insurance coverage to borrowers who fail to maintain the required insurance on their own, CPI helps the lender recover the value of the vehicle if it is damaged, destroyed, or stolen. In the event of a repossession, a lender covered by a CPI program can file a claim with the CPI provider, helping them recoup some or all of the outstanding loan balance and reducing the risk of a charge-off. CPI coverage can also provide the lender with additional protection by covering expenses associated with repossession, transportation, storage, and other costs.
Not all CPI Programs Are Created Equal
While it’s important for a lender to protect its auto loan portfolio with CPI, it is just as important to choose a portfolio protection partner carefully. State National is the industry-leading provider of CPI, celebrating over 50 Years of Excellence in the industry. Because we specialize in portfolio protection, we have the exclusive ability to create programs tailored to fit the specific needs of each financial institution.
State National's CPI programs provide unmatched benefits, including:
When you choose State National, you are partnering with the specialist offering the most comprehensive and flexible solutions to help financial institutions manage risk and reduce financial losses — especially in a time of rising auto loan delinquencies. To connect with a portfolio protection specialist and get a customized quote for your financial institution, contact resources@statenational.com or call 800-877-4567.