Simplify and Streamline with LSI: Pros and Cons of CPI vs. LSI

If you conduct a Google search on “Simplifying Your Life,” how many results do you think appear?

The answer is more than 8 million.

From “The Simple Living Manifesto: 72 Ideas to Simplify Your Life” to “12 Secrets to Simplifying Your Life and Lightening Your Load,” there are millions of articles on how to make your home and work life easier.

At Lenders Risk, we want to help lending institutions simplify and streamline their processes. That’s why we offer our Lenders Single Interest (LSI) product, which eliminates the need for tracking of member insurance coverage, thus saving time and money for your organization.

If you currently have Collateral Protection Insurance (CPI) or are trying to choose between CPI and LSI, we would like to share some information that can help with the decision-making process.

As a product that protects lenders for loans on which the member-provided insurance has lapsed or cancelled, CPI incorporates a computer-based member insurance tracking system.
This system produces a series of letters sent to the member advising that they must reinstate or replace their insurance by a certain deadline, or the credit union will force place insurance on the collateral to protect its interest.

Part of making life easier for lending institutions involves cutting down on “noise.” Unfortunately, member-based tracking often creates member irritation, resulting in phone calls to the credit union. Sometimes the member insurance has not actually lapsed or cancelled, and in other cases members are upset about the large premium.

Because premiums are placed only on members whose insurance has lapsed or cancelled, the size of the individual premiums necessary to address the credit union’s loss exposure can be has high as 12 % to 24% annually of the outstanding loan balance range.

Additional issues that may arise are:
CPI can be burdensome in the sense that credit union staff may be required to provide a substantial degree of attention and management. This includes reviewing and managing numerous reports generated by the tracking system and posting new and cancelled premiums to member accounts.

Members who do let their insurance lapse tend to be under financial duress and cannot absorb a $1,500 to $3,000 premium added to the loan. The chance of the loan defaulting and the credit union having to absorb the cost increase significantly, which means credit union members who did keep their insurance in place eventually end up absorbing some of the cost as well.

The blanket insurance provided by LSI protects all loan types covered by the policy.

The main advantages to the LSI approach are:
It streamlines the process so the only action required by the credit union is to complete a monthly report of the number of loans of each collateral type – or the total of the outstanding loan balances as of month end, and pay the premium by check or ACH.

Entering this information is easy thanks to our proprietary online LSI Platform. Our online portal allows members to enter claims 24/7 and even to upload stored claim-supporting documents such as the note, security agreement, title, copy, etc. A user-friendly “wizard” guides the user through the claim reporting process. (Watch a demo here.)

A small premium is assessed for every new loan (even if the member has his or her own insurance) but in our experience, it’s much easier to collect that small amount than a $1,000+ annual premium from a member who likely can’t afford it.

Almost all physical damage claims are settled within 5 to 10 days of the date Lenders Risk receives all necessary claims documentation.

Ready to see how Lenders Risk can help streamline your workflow? To learn more about our LSI insurance or obtain a quote, call 888-600-4436.