Premium Generation:
Blanket VSI premium is generated at loan origination. Insurance and banking law varies by state, but in general, most lenders pass the premium charge on to the borrower. This is done as a line item on the installment loan contract that is excluded from the APR calculation, but can be amortized in the loan payments.
Figure 1: VSI Premium Generation
The Blanket VSI program changes based on the credit quality of the automobile portfolio. Typical “A” credit lenders pass the premium charge on to the borrower. Lessors build the fee into the lease origination fees, and Sub-Prime lenders typically pay for the premium themselves from origination fees, or charge the dealer the premium fee (Figure 1). Passing the charge to the borrower is regulated by state banking and insurance law, and is currently being done in 42 of the 50 states.
Damage Claim:
The typical events that occur during a loans maturity that lead to a Blanket VSI claim is detailed in Figure 2. The borrower for whatever reason gets into financial trouble. One of the first bills that the borrower stops paying is their monthly auto insurance premium. The insurance company will cancel the borrower’s automobile insurance after 45 to 60 days leaving a risk exposure to the lending institution.
Figure 2: VSI Claim Life Cycle
If the borrower damages the automobile between the cancellation of their auto insurance and repossession, the automobile asset value after repossession will be less than the actual cash value by the damage amount. When the financial institution files a claim, Blanket VSI insurance will pay up to the damage amount, actual cash value (ACV), or loan amount.(Figure 3)
Figure 3: Damage Claim Payment
Skip Claim:
The typical skip claim lifecycle is sometimes different than the damage claim life cycle. Many times it is simply a delinquent borrower who knows there is a pending repossession and does not want to lose the automobile. In this case, the lender has attempted to contact the borrower or co-borrower to repossess the automobile and was unable to locate them or the automobile. This is when a Blanket VSI skip claim is filed.
Once the claim is filed, Miniter Group will have 60 days to locate the borrower, co-borrower, or the collateral. Depending on the endorsement to the lenders policy and the credit quality of the portfolio, the lender may be eligible for collateral only skip coverage. This is known as Broad Form Skip coverage. This coverage specifies that the automobile must be recovered or the Blanket VSI insurance pays the claim as shown in Figure 4.
Figure 4: Skip Claim Payment
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