What is Collateral Protection Insurance? Why Every Auto Dealership Lender Should Have It

One of the main concerns for an auto dealership lender is risk management in the auto insurance industry. The responsibility of the borrower is not always guaranteed, but with Collateral Protection Insurance, lenders can mitigate that risk and help borrowers take more responsibility for the amount they are taking from a lender.

Collateral Protection Insurance is used by auto dealership lenders to protect themselves from outstanding financial losses in the event of an auto accident. If a borrower finances or leases a vehicle from a dealership and then gets into an accident, normally the borrower’s insurance would cover the damages.

If the borrower does not have the proper insurance, however, then the damages are covered out of the car’s value- meaning the finance company now loses money. With Collateral Protection Insurance, the lender can cover the amount for the damages.

What is Collateral Protection Insurance?

Collateral Protection Insurance is a comprehensive and collision insurance program the dealership lender buys to cover the losses from the uninsured loans in the portfolio. The lender can offer this insurance policy at the point of sale or when the borrower cancels his/her auto insurance policy.

So how exactly does this work?

A borrower signs the loan agreement and an insurance addendum. The addendum provides the initial Collateral Protection Insurance disclosures regarding the debtor’s obligation to maintain insurance during the term of the loan and also requires the debtor to acknowledge the following:

1. The borrower does have and will be providing proof of physical damage insurance before taking possession of the vehicle
2. The borrower will not be providing evidence of insurance and understands that Collateral Protection Insurance will be added in ‘x’ amount of days at a disclosed cost to the borrower if he/she does not provide evidence of insurance.

With Collateral Protection Insurance, only uninsured borrowers of vehicles are affected. In addition, Collateral Protection Insurance policies can protect borrowers as well by repairing a damaged vehicle. Collateral Protection Insurance is beneficial for lenders and borrowers, reducing the instability caused by uninsured drivers.

Insurance tracking is an important step in the process because the borrower could remove their auto insurance at any time and that’s when the auto lender needs to know when to reinstate Collateral Protection Insurance premiums to the monthly loan. Using an insurance tracking service, like Verisurance, will keep auto lenders on top of their customers’ insurance status so Collateral Protection Insurance can be used effectively.

It’s important that lenders select an experienced company when implementing a Collateral Protection Insurance program. A company experienced in Collateral Protection Insurance has the technological and customer service capabilities to accurately identify the borrowers who have allowed their coverage to lapse.

Get Collateral Protection Insurance for Your Dealership with Verisurance

Verisurance is a leading provider of cloud-based software that allows auto dealers to effectively track their borrowers’ insurance status while also providing collateral protection insurance solution leverages. This advanced tracking technology has an innovative collateral protection insurance module that enforces compliance requirements with borrowers to help auto dealership lenders avoid risk.

Texts, emails, and in some cases, phone calls, will be sent out on the lender’s behalf to remind their borrowers that they need to have full coverage insurance. The dashboard gives the lender visibility and control of their portfolio of borrowers to see which fall under insurance risk, making their Collateral Insurance Protection easier to put into effect than ever before.

Every auto dealership needs to have Collateral Protection Insurance, especially as insurance prices continue to rise. With a rise in insurance prices comes a rise in policy cancellations and uninsured borrowers, so it’s crucial to have Collateral Protection Insurance as a backup to avoid losing money.

Without a tracking service like Verisurance, it’s up to the lender to stay on top of each one of their borrowers making sure they continually have the proper insurance coverage while also figuring out when to reinstate Collateral Protection Insurance fees to their monthly loan. Verisurance makes this process run more smoothly by easily letting lenders know which borrowers they need to apply Collateral Protection Insurance to so they can avoid risk as much as possible.

Having Collateral Protection Insurance at your auto dealership can be a lifesaver when it comes to saving money for your company. Don’t put yourself at risk by letting overlooked borrowers with insurance discrepancies fall through the cracks. Try our free demo today to see how much easier insurance tracking can be for your company when you’re using Verisurance.

Give us a call at 678-783-8123 or email us at sales@verifacto.com.