CPI and the BHPH Fit

The Buy-Here-Pay-Here Insurance Problem:

Buy-Here-Pay-Here dealers inherit myriad risks unique to the special auto finance landscape. One such risk is the specter of uninsured physical damage losses. We all know that many BHPH customers often arrive at the finance desk without an actionable plan to insure the finance collateral. We also know that most BHPH customers can and will procure insurance when required for financing. So what’s the problem? It’s this: Buying insurance is not the same as keeping insurance, and many BHPH customers fail in the latter. So then, how does a BHPH dealer or special auto finance company respond to the inevitable uninsured exposure of its finance collateral?

Solutions: 

1.       Do nothing and hope for the best – An organization can simply choose to stand idly by and rely on their customers to adhere to their agreement to provide insurance within their retail installment contract or lease. While some BHPH organizations choose this path, the solution exposes them to uninsured losses. Simple but not effective.

2.       In-House Insurance Tracking – Diligent insurance monitoring of a BHPH portfolio is exhausting and is still an imperfect risk management technique. This solution requires up-to-date record keeping of a BHPH portfolio’s insurance information and frequent calls by collectors to verify valid insurance coverage. In the end, the creditor expends time and effort to reinstate insurance, providing free labor for insurance agents who earn the commissions in the process. The results are imperfect at best.  Not every policy will reinstate. Uninsured losses remain a threat.

3.       Creditor Placed Insurance- In most situations a creditor has the right to purchase creditor placed insurance (CPI) on uninsured collateral and pass that charge onto the customer. This allows a BHPH organization to insure collateral at any time that customer fails or elects not to do so. Many customers who provide their own physical damage insurance at point of sale eventually allow the insurance lapse. Frequently it happens in a few days or weeks. Other customers may be unable to obtain any evidence of insurance at the time of sale.  For all of these situations CPI may be the ideal fallback, the “Insurance of Second Resort,” that allows the creditor to keep the vehicle insured against loss or damage.    

If you are interested in finding out more about CPI and its potential application to your portfolio, please contact us via phone or email and we would be glad to discuss your needs.