SNC Spotlight

Insurance can be complex. Turn to our blog for up-to-date, relevant content to help you make the best decisions for your financial institution. With expert knowledge from seasoned industry professionals, we simplify insurance topics so you can get back to business.
All Posts

CPI, Blanket, Self-Insurance: Which Is Better for Your Organization?

Part 2 of Our 3-Part Blog Series on Collateral Protection Insurance

At State National, we have specialized in loan tracking and portfolio protection insurance for more than 50 years. To us, the ins and outs of collateral protection are second nature — but others may be somewhat unsure of exactly what it is, how it works, and how different portfolio protection methods compare.

So, we’ve created a 3-part blog series to explain some of the nuances. In Part 1, What is Collateral Protection Insurance (CPI) — and Do You Need It? we shared a simple definition of what collateral protection insurance (CPI) is and what it does. Here in Part 2, we compare CPI with two other portfolio protection methods: Self-Insurance and Blanket coverage.

 

Every financial institution has unique needs. It is important to take a holistic approach when exploring risk mitigation options. The key questions to ask yourself when deciding on how to manage risk in your loan portfolio are:

  • How much risk can you tolerate vs. how much do you want to transfer?

  • What are your goals and objectives?

  • What do you expect in return?

Self-Insurance

Can a lender skip the trouble of finding a CPI provider and simply self-insure their auto loans? They can, but similar to not wearing a seatbelt while driving, by doing so they are increasing the risk of unfavorable financial outcomes.

Retaining the responsibility of covering financial losses due to uninsured and/or damaged collateral undermines the fundamental purpose of any insurance program, which is risk transference. The risk is even more adverse because you cannot control the status of a borrower’s insurance coverage or economic shifts any more than you can personally control how another driver may drive on the road around you.

A self-insured lender assumes all risks and absorbs any losses that occur. The greatest disadvantage of self-insurance is the volatility of earnings and that the risk is not transferred. To minimize uninsured losses, some self-insured lenders add follow-up procedures such as:

  • Requiring evidence of physical damage insurance at the time of loan closing.

  • Writing or calling the borrower when evidence of insurance is not received.

  • Writing or calling borrowers who receive cancellation notices from insurance carriers.

These procedures are time-consuming, difficult to execute without advanced technology and highly trained staff, and rarely effective without a mechanism for forced placement.

 

Blanket Insurance

With a blanket insurance policy, lenders pay a premium based on the total number of loans, typically a fixed dollar amount per vehicle or a percentage of the outstanding balance. Through a blanket policy, those who conduct business with your financial institution (either those who are also borrowers, or everyone who transacts with you, depending on how costs are distributed) must bear the cost of an uninsured borrower.

Some states do not permit the cost of blanket insurance to be charged to borrowers. In these states, the costs must be borne solely by the lender, which can serve to weaken a lender’s competitive edge in the market, especially as the best borrowers are able to choose a lender that can offer lower rates and fees because they are not building the cost of a blanket policy premium into the loan cost.

Additionally, a blanket policy is, in essence, a “cost plus” policy, with the lender trading dollars with the insurance company that must cover both the cost of claims plus the insurer’s expenses. Therefore, the direct cost of the blanket policy to the lender will continue to increase as loan business grows. The cost of a blanket policy on a growing book of business can increase regardless of whether or not a policy’s loss ratio — the ratio of claim payments lenders receive to premiums they pay — worsens.

 

Subscribe to Our Blog!

 

Collateral Protection Insurance (CPI)

CPI enables lenders to manage and mitigate risk by transferring the risk of uninsured collateral to an insurance provider. The program is administered by the provider only on borrowers who fail to purchase or maintain insurance.

CPI requires no individual underwriting. A borrower who does not comply with the loan requirement to procure private insurance is “written” regardless of age, driving record, or location of residence. Coverage for insurance placed in a CPI program offers your institution the same protection you would have received had the borrower maintained his or her own private insurance.

In administering the program, the CPI provider receives a file of all new loans and updates on existing loans in the lender’s portfolio and then tracks the insurance status of each loan. The provider confirms which borrowers have not provided adequate proof of insurance and sends appropriate notices alerting them to do so.

If the borrower fails to submit proof of insurance in response to these notices, the lender may then choose to place a CPI policy on the non-compliant borrower’s loan to protect the financial institution’s interest from damage or loss. They then pass the cost to the borrower by adding the premium to the loan balance. The charge is removed as soon as private coverage is reinstated. It costs financial institutions little or nothing to obtain this protection.

 

Which Is Better for Your Business? Five Considerations When Determining Which Program Is Right for You

  1. Determine the level of risk your institution is willing to assume.

  2. Consider market drivers, costs, and broader economic conditions.

  3. Consider how an insurance product leverages new technology to improve administration and reduce borrower noise.

  4. Recognize the overall impact on you and your borrowers.

  5. Analyze your losses, their sources, and how they impact your bottom line.

Advantages of CPI

In addition to protecting loan collateral, there are several advantages to CPI:

  • Only uninsured borrowers pay premiums; as a result, CPI is more equitable to the lender and to those borrowers who do comply with agreed-upon insurance requirements.

  • Since CPI transfers the risk of loss to an insurance company, loan portfolio expenses are predictable, charge-off ratios are more stable, and loan business can be more competitive.

  • In challenging economic conditions, when auto repossessions (which often have damage) are increasing, blanket policy premiums can skyrocket — so the relative value of a CPI program over blanket coverage increases in direct proportion to the number of charge-offs in a loan portfolio.

  • Because borrowers who have let their insurance coverage lapse often have other financial problems, the detailed insurance tracking in a good CPI program can give a lender warning that a borrower’s credit rating may be slipping.

  • Notification of lapsed coverage presents lenders the opportunity to work with a borrower to keep the loan current and prevent losses that come with problem loans.

Read Part 1, What Is Collateral Protection Insurance (CPI)

Read Part 3, What to Look for in a CPI Provider

In Part 1, What Is Collateral Protection Insurance (CPI) and Do You Need It, we share a simple definition of what collateral protection insurance (CPI) is, what it does, and how it can benefit lenders., based on our 50 years of industry experience.

In Part 3, What to Look for in a CPI Provider, we discuss the differences between average and high-quality portfolio protection providers — and the importance of choosing the right partner for your financial institution.

If you have any questions about this article or about CPI in general, or if you would like to discuss your financial institution’s specific needs, call or email us today!

State National
State National
As the leading insurance carrier in the United States specializing in CPI, State National offers single-source solutions for credit unions, banks, finance companies, and specialty lenders of all sizes. Our services are cost-effective and tailor-made to safeguard assets against uninsured collateral losses.

Related Posts

Strategic Insights for the Modern Credit Union

Addressing Challenges, Seizing Opportunities

Your Partner in Protection: Compliance Without Compromise

Compliance You Can Trust, Transparency You Can See Balancing risk management and regulatory compliance while maintaining strong borrower relationships is no easy task. At State National, we understand the weight of this responsibility. Protecting your financial institution, your borrowers, and your reputation is at the core of our work. That’s why our mission is to deliver industry-leading portfolio protection solutions anchored by innovative technology, unmatched transparency, and steadfast reliability. How State National Ensures CPI Compliance At State National, compliance isn’t just a priority, it’s built into everything we do. We know lenders face mounting challenges, including economic uncertainty and heightened regulatory scrutiny. That’s why we’ve developed a comprehensive approach that goes far beyond checklists; it’s about operating with integrity and ensuring our programs exceed regulatory and operational expectations. Industry Expertise You Can Rely On Regulatory Expertise: Our skilled team actively monitors federal and state-level mandates to ensure your program remains compliant. Whether it’s evolving regulations or precise documentation requirements, we’ve got you covered. In-House Compliance Department: Our on-site team employs strict, measurable quality control processes. Proactive Adherence: This same dedicated team manages over 50,000 regulatory filings annually, helping you stay ahead of federal and state mandates, including guidance on NCUA, CFPB, and other key industry regulations. Comprehensive Audits: Our meticulous audits and legal reviews ensure your institution is prepared not just for current regulations but also for future challenges. Proven Reliability: State National achieved the prestigious 'A' (Excellent) rating from AM Best the very first year we were eligible, and we have held that rating for 30+ consecutive years — a testament to our exceptional financial strength and dependability. Future-Forward Research: We actively collaborate with industry organizations and regulatory bodies to anticipate and adapt to upcoming compliance changes, ensuring you and your organization are always ahead of the curve. Comprehensive Risk Management Our industry-best risk management services go above and beyond to protect your institution, ensuring compliance every step of the way. From data security to borrower communication, we incorporate rigorous measures, including bulletproof audit trails and prevention-focused processes, to safeguard against potential missteps. Accurate, prevention-first approach reduces unnecessary borrower touches. Focused portfolio protection expertise with decades of specialized experience. Complete audit trails for ongoing compliance visibility. Proper licensing for all State National claims adjusters to ensure claims are always handled in accordance with required regulations. Ongoing annual training for all relevant employees on the proper handling of PII, Fair Claims Handling, best practices for data security and controls — phishing, quishing, physical security both in and out of office, and more. Borrower submission of insurance information directly to us minimizes the risk of lost documentation. As the only dedicated portfolio protection provider that is also the underwriter, we don't act as a broker like other providers do — we are able to streamline communication and eliminate unnecessary handoffs and information sharing. Taking the Extra Step at Every Step Because every state department of insurance operates differently, we've also gone above and beyond to meet each state's unique regulatory standards. We create state-specific notices tailored to these requirements, and also carefully develop all of our borrower notice cycles to align with each state's precise notification guidelines. Advanced Technology Tools for Simplified Compliance Solutions Staying compliant in a rapidly changing financial environment requires advanced tools and forward-thinking innovation. That’s why State National integrates advanced technology into every facet of portfolio protection, designed to simplify compliance while improving efficiency and control. Our proactive approach ensures that the vast majority of insurance updates — about 79% — are handled completely behind the scenes, with no lender or borrower involvement. We employ extensive automation to maximize accuracy and efficiency, including our well-established EDI process, cutting-edge AI tools including insurance search and verification technology, Intelligent Document Processing (IDP), automated text and email notifications, and more. What Does Technology Have To Do With Compliance? Because of the unprecedented speed and accuracy of these automation efficiencies, our fast, effective, low-touch resolution reduces the risk of uninsured borrowers while enhancing operational precision. With 97.5% of borrower insurance issues completely resolved prior to any certificate placement, your institution avoids the compliance pitfalls that come with false placements. The InsurTrak Advantage In addition, our proprietary InsurTrak platform simplifies insurance tracking and reporting, giving you the tools needed for real-time program oversight, clear audit trails, and automated accuracy to prepare for any internal or external review. InsurTrak also automates payment changes, adds, and refunds, heightening speed and accuracy and avoiding the slowdowns and errors that come with manual processing. InsurTrak’s transparency is unmatched by any other insurance tracking platform — you can see real-time borrower data and a complete borrower history, see any communication including chat logs, and even listen to recorded borrower calls on-demand, right in the system. All of the information you need is at your fingertips — you are never in the dark. Proven Reliability Through Experience Over more than five decades, we’ve built a legacy of reliability, with a commitment to providing consistent excellence. From our implementation team that draws on years of expertise to make every transition seamless, to our highly responsive dedicated Client Executives and Account Reps who know your individual program inside and out, we do everything we can to ensure every partnership is successful. When you work with State National, you gain more than just a portfolio protection provider; you gain a partner whose focus is safeguarding your institution’s long-term success.

SNCares 2024 Recap

Community, Care, and Connection: SNCares Year in Review From grants to giving hands, here are some of the ways we made a difference in 2024 At State National, giving back isn’t just something we do — it’s part of who we are. That’s one of the reasons we created SNCares, a companywide committee dedicated to service and philanthropy. Over the past year, we’ve had the privilege of partnering with dedicated organizations and contributing to meaningful causes that uplift our communities. From grants and donations to hands-on volunteering, our dedicated team members embraced hundreds of opportunities to make an impact. The stories shared here are just a glimpse of the meaningful work we accomplished together, both as individuals and as a company, throughout the year. We hope you enjoy this snapshot of the many ways we came together in 2024 to make a difference and help create a brighter future for those around us!