Loss prevention strategies for uninsured auto loan collateral

Failure to recognize your responsibility to protect your interest in your borrowers’ vehicles may result in financial loss, borrower aggravation and administrative burden for your credit union. Your borrowers risk heavy repercussions when they choose to drive uninsured. However, because few states require drivers to maintain comprehensive and collision insurance, many borrowers may choose not to purchase the additional coverage. A study conducted by the Insurance Information Institute reported that 23% of insured drivers lack both comprehensive and collision coverage. While you may have no control of your borrowers’ driving habits, you are able to encourage them to protect your interest in the vehicle.

As a lender, you’re not only able to offer borrowers financial resources to purchase vehicles, but you’re also able to remind them to maintain the required amounts and types of insurance coverage to help prevent unexpected financial strain as a result of vehicle damage. Expressing appropriate concern early may help both parties mitigate risk. However, if a borrower continues to lack adequate insurance and your attempts to connect with them are ineffective, it’s important for your institution to protect itself from potential losses. According to recent research on uninsured motorists, 12.6 percent of drivers are uninsured nationwide.

While the reasons drivers continue to lack insurance may vary, thankfully a strategy exists that is designed to protect your interest in uninsured collateral. Collateral Protection Insurance (CPI) was developed to identify exposure, protect the lender’s interest and to relieve the administrative burden associated with borrower communications and insurance monitoring.

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