Behind the Curtain: The Anatomy of a CPI Program
Reinsured Collateral Protection Insurance (CPI) programs are very beneficial to the BHPH, LHPH or Special Auto Finance Company that utilizes them. A significant benefit of a reinsured CPI program is the potential for a finance company or lender to earn a reasonable profit in exchange for the assumption of the risk. Reinsurance allows the owner of the reinsurance company to assume the role of “risk taker” after covering the expense of issuing and administering the policy. These expenses are bundled in a ceding fee.
There are two principal components to a reinsured CPI program in addition to the reinsurer: The CPI Insurer and the CPI administrator. The insurer is responsible for issuing a policy with forms and rates approved by the state department of insurance, accounting for and paying mandated premium tax. Typical carrier ceding fees (including premium tax) are in the nine percent range. For anyone who doesn’t like the idea of giving up a few points of potential profit, consider the value proposition. Execution of CPI without an appropriately licensed insurer is unlikely to be compliant with state insurance law. Now is as good a time as any to ask yourself if you know who your CPI insurer is and if they are licensed by your state’s department of insurance.
The CPI administrator’s cost is the second part of the ceding fee equation. As the name implies, the CPI administrator handles the day-to-day administration of its clients’ CPI programs. Administration of a CPI regimen involves: assembling the right policy package for the creditor, adjusting and issuing claim payments to the creditor, sending notices of insurance to a creditor’s customers, preparing cession statements, CPI training, and communicating with regulators when they have questions about a creditor’s CPI policy and implementation. An exceptional CPI administrator also works diligently to design and maintain a sound, stable, and profitable CPI programs for its clients.
Altogether, the ceding fee should amount to anywhere between 15%-25% depending on the premium volume and administrative complexity. The ceding fee is deducted from the creditor’s collected CPI premium and requires no out-of-pocket expense from the creditor. CPI Administered by Berkshire Risk Services contains an “all-in” ceding fee with no other charges. Other providers may unpack their service offerings and charge separately for individual services provided. Be sure to ask your CPI administrator to line those details out so you can get a better picture of the total cost.
The cost tied to installing and maintaining CPI is important to understand. A CPI administrator performs and is responsible for intricate, specialized duties when handling various aspects of a CPI policy. The insurance carrier has distinct responsibilities as well. It’s important to know how both of these organizations work and interact within your CPI program so you can optimize its success. If you want to find out what we can do for your organization, reach out to me any time with some general questions and we can explore what Berkshire Risk Services can do for you.
