Expatriate Insurance

 Expatriate insurance policies are designed to cover financial and other losses incurred by expatriates while living and working in a country other than one's own.

Insurance should be arranged prior to relocating to a new country or destination. Policies will generally cover the duration of your stay and can be purchased on a 6-month to annual basis. It is important to purchase this insurance from a reputable company.

The most common insurance policies purchased by expatriates include:

• Personal property
• Automobile insurance
• Personal liability insurance
• Emergency evacuation
• Medical and dental coverage
• Short-term travel insurance

In some cases, specialty insurance can be purchased for high-risk areas of the world that provide coverage for:

• War and terrorism
• Kidnap and ransom
• Casualty insurance

Expatriate personal property insurance

There are a number of ways to insure property while overseas.

Personal property insurance will provide coverage for all your valuable items. This type of cover is usually attached to a home insurance policy which will provide coverage for all "fixtures and fittings within the home" and "additional items of increased value". With a home insurance policy it is possible to include specific items on a "worldwide all risks" (WWAR) basis which will protect your valuables outside of your home. Insurers will typically require proof of value when insuring WWAR items and the addition of these items will increase the plans premium. In the USA this type of plan is commonly referred to as "renters insurance", although the scope of these policies overseas can have much wider implications.

Home insurance is different from fire insurance which protects the physical structure of the home and all rebuilding costs. Fire insurance policies are normally only obtained in the case that an individual actually owns the property and can be extended to cover "extra" or "allied perils". Extra perils can usually be added to a policy at the expense of an increased premium and can include typhoons/hurricanes/cyclones, flood damage, landslip and subsidence, and what in the USA is referred to as "an act of God". If you are expecting to be overseas for a short period of time it is highly unlikely that you will purchase a fire insurance policy unless otherwise stipulated in your tenancy agreement.

For individuals who are relocating overseas international transport insurance is usually a valuable plan. These plans are extremely broad in their scope and if the items insured are being shipped to their destination then the policy will usually be subject to marine insurance and maritime law. This includes all principals of average, salvage (different from the salvage found in property and auto insurance), and sue and tort. International transport insurance can be complicated as there are many different areas of consideration, typically an insurance company that deals with this area of insurance will have dedicated international transport specialists.

Property insurance claims can be complicated and are usually settled in the following ways:

Indemnity - The payment of monies to the insured to cover the loss. This is also known as a "Cash payment".

Repair - Payment to a repairer to fix the damaged item or property.

Replacement - With new items, property, or items that are likely to suffer very little depreciation, the insurer may choose to simply give the insured a new item that is the same as the one that was lost. This can be beneficial to the insurer, especially if they can obtain a discount from the supplier.

Restoration - Typically this means the restoration of the item or property to the condition that it was in immediately prior to the loss.

New For Old - the substitution of a new item that acts the same way as the item that was lost or damaged.

It is important to check the policy schedule and understand in which way claims on a specific policy will be settled. Marine Insurance or marine-related insurance policies have long and complex claims procedures that are best left to experts.

Expatriate international auto insurance

Automobile primary liability (also known as third party liability) insurance is generally a required purchased in the country in which you are located. Local governments will require this in order to register your vehicle. Be aware that limits of coverage can be very low in some countries. If you are uncomfortable with the level of coverage available with third party coverage, you may wish to obtain comprehensive motor insurance. This type of plan can increase coverage to an appropriate level of protection.

Be aware when shopping for third party liability insurance that rates may vary drastically. Do not assume that the premium quote you receive is the standard within that country. Shopping for competitive rates is as essential abroad as it is in the United States or Europe.

It is very difficult to transfer auto insurance from country to country. No claims discount (NCD) or no claims bonus (NCB) may be transferred, however, and offer substantial discounts for expatriates worldwide.

The main types of auto (or motor) insurance available internationally are:

Third Party Coverage - This will provide coverage for an individuals liability at law to any third parties who have died or been injured, or any damaged to property resulting from an accident.

Third Party Fire and Theft Coverage - Comprising the scope of cover described above with the addition of property insurance on the vehicle but only in terms of a loss resulting from fire or theft.

Comprehensive Coverage - This is the insurance with the widest scope of cover. It includes both Third party, Fire, and Theft coverage with the addition of "all risks" insurance. Typically the premiums for Comprehensive Vehicle Cover are the highest on the market.

Different countries will have different requirements in regards to the minimum amount of coverage that an individual must have. These requirements are usually set forth by the country's Insurance Authority or Regulator. In nations that where previously British Colonies it is usually the case that every vehicle should be covered under a basic Third Party Liability Plan or ACT policy. ACT Insurance refers to the British Road Traffic Act of 1930, which laid out the basic requirements for motor insurance at that time. ACT insurance will only cover the insured for any death or injury resulting from an accident.

If you are unfamiliar with the laws regarding motor insurance in the country that you have relocated to you should talk to an insurance professional (either a real estate broker or agent) for more information.

Expatriate international health insurance

If you are not covered under a group medical insurance program, an individual international medical policy could be purchased. These policies include worldwide medical protection and also can include evacuation services. Many of these plans have direct-pay with hospitals & global networks worldwide as well as worldwide emergency assistance to help you find the best facilities to treat your conditions. Cost of expatriate insurance depends on a myriad of factors, including your age, medical history, country of coverage, national resources and In many cases, a country's level of industrialization. However, international healthcare and insurance may be less expensive than US domestic insurance and healthcare.

An International Health Insurance policy will typically calculate premiums based on a policyholder's age, current medical history, and area of coverage, rather than on their claims history. These plans usually offer one of two areas of coverage: Worldwide; or Worldwide excluding the USA (other countries may be excluded as well). The reason for this is that medical care in the USA is the most expensive in the world, but most international insurance companies will rank countries by medical costs and have premiums adjusted accordingly.

The majority of international health insurance plans for expatriates are, however, globally portable. This allows foreign nationals overseas to move fluidly form one country to the next without periods of no cover. This is a significant difference from local health insurance plans and makes these policies attractive to many individuals. For the most part, however, an international health insurance policy will not cover an individual when they have returned to their home nation ("home country coverage"), making the investment practical only if the policyholder is planning to be overseas for an extended period of time. Some policies also cover treatments in a person's home country often for a limited period of time.

Those traveling abroad for shorter periods of time might wish to purchase a travel medical policy which can provide assistance during emergency medical situations abroad. These policies are less expensive as they are time specific rather than annual policies, this allows the policyholder to specifically tailor the plan to the exact length of their trip. A majority of international travel insurance policies will also allow the policyholder to be evacuated to the nearest center of medical excellence in the event of a serious illness or injury; it is also possible to obtain repatriation coverage.

It is important to understand how your medical policy will assist you should you need urgent medical care in your host country. Many countries have less than adequate facilities and may require immediate payment for services. Therefore, it is advisable to understand the assistance your policy will provide to locate suitable medical facilities.

Another important and often overlooked element of international health insurance policies is the underwriting criteria used by the insurance provider. Policies are underwritten in one of two ways: moratorium; and full medical underwriting. With moratorium underwriting, applicants are not required to disclose any medical declarations, and so some pre-existing conditions may be covered; although, there are restrictions to the coverage of pre-existing conditions. New or unexpected conditions occurring after the start date are covered according to policy conditions. Full medical underwriting requires the collection of a full medical history, and usually excludes coverage of pre-existing conditions.

It is also important to review the policy benefits (what is covered) and exclusions (what is not covered) prior to purchase. You should be able to obtain a "certificate of coverage" which will provide comprehensive details prior to your purchase. Often, some benefits are limited either by the amount of coverage provided for certain treatments or for a period of time. For example, maternity benefits are typically excluded for the first 12 months of coverage. Benefits may also be limited or excluded for travel to certain countries.

Common international insurance exclusions

International insurance plans and policies, regardless of their type of cover, will always include exclusions for specific "Fundamental Risks" (risks of which there is no chance of recovery).

Fundamental Risks include:

• Acts of War
• Hostilities, Military Actions, Terrorist Acts, and Other Civil Commotions, whether war has been declared or not
• Nuclear Explosions and resulting nuclear fallout
• Contractual Liability - Liability of the insured which he has assumed under an agreement which normally would not have arisen

Many policies will have their own specific exclusions. These can be extremely broad or narrow depending on the type of policy or the company that has issued the insurance. It is common to find exclusions listed on a policy that have been worded "Directly Or Indirectly as a result". This means that even if the loss has occurred as an indirect case of an excluded item, the loss will not be covered in any way. It is for this reason that the insurance idea of proximate cause becomes so important. Underwriters will include exclusions to limit their risk to a specific type of loss.

A plans exclusions will always be specified in the policy schedule or attached exclusionary rider. Typically you will have to agree to the exclusion in the policy before it goes into effect.

Business interruption insurance

 What Is Business Interruption Insurance?

Business interruption insurance is insurance coverage that replaces business income lost in a disaster. The event could be, for example, a fire or a natural disaster. Business interruption insurance is not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.

Business interruption insurance is insurance coverage that replaces income lost in the event that business is halted due to direct physical loss or damage, such as might be caused by a fire or a natural disaster.

This type of insurance also covers operating expenses, a move to a temporary location if necessary, payroll, taxes, and loan payments.

In rare cases, business interruption insurance can apply if a civil authority shuts down a business due to physical damage to a nearby business, resulting in a loss for a firm.

Standard business interruption insurance does not reimburse policy holders if the business is closed due to a pandemic. Even some all-risk insurance plans have specific exclusions for losses due to viruses or bacteria.

Understanding Business Interruption Insurance

Business interruption insurance premiums (or at least the additional cost of the rider) are tax-deductible as ordinary business expenses. This type of policy pays out only if the cause of the business income loss is covered in the underlying property/casualty policy. The amount payable is usually based on the past financial records of the business.

Business interruption insurance coverage lasts until the end of the business interruption period, as determined by the insurance policy. According to the Insurance Information Institute, the standard policy is 30 days, but using an endorsement can extend it to 360 days.1 Most business interruption insurance policies define this period as the date that the covered peril began until the date that the damaged property is physically repaired and returned to the same condition that existed prior to the disaster. There may also be a waiting period of 48 to 72 hours.

What Business Interruption Insurance Covers

Most business interruption insurance covers the following items:

Profits: Based on prior months' performance, a policy will provide reimbursement for profits that would have been earned had the event not occurred.

Fixed costs: These can include operating expenses and other incurred costs of doing business.

Temporary location: Some policies cover the costs involved with moving to and operating from a temporary business location.

Commission and training cost: In the wake of a business interruption event, a company will often need to replace machinery and retrain personnel on how to use the new machinery. Business interruption insurance may cover these costs.

Extra expenses: Business interruption insurance will provide reimbursement for reasonable expenses (beyond the fixed costs) that allow the business to continue operating while the business gets back on solid footing.

Civil authority ingress/egress: A business interruption event may result in government-mandated closure of business premises that directly cause financial loss. Examples include forced closures because of government-issued curfews or street closures related to a covered event.

Employee wages: Coverage of wages is essential if a business does not want to lose employees while shutting down. This coverage can help a business owner make payroll when they cannot operate.

Taxes: Businesses are still required to pay taxes, even when disaster hits. Tax coverage will ensure a business can pay taxes on time and avoid penalties.

Loan payments: Loan payments are often due monthly. Business Interruption coverage can help a business make those payments even when they are not generating income.

 Business interruption insurance is not sold as a separate policy but is an add-on to an existing insurance policy.

What Business Interruption Insurance Does Not Cover

According to the Insurance Information Institute website, you will not be covered for:

• Broken items resulting from a covered event or loss (such as glass)
• Flood or earthquake damage, which are covered by a separate policy
• Undocumented income that’s not listed on your business’ financial records
• Utilities
• Pandemics, viruses, or communicable diseases (such as COVID-19)

Special Considerations for Business Interruption Insurance

Note that the insurer is only obligated to pay if the insured actually sustained a loss as a result of the interruption. The amount that will be recouped by the business will not exceed the limit stated in the policy.

Business Interruption Insurance and Pandemics

Not surprisingly, what business interruption insurance does and does not cover has come under particular scrutiny during the COVID-19 outbreak and the business shutdowns and curtailments that resulted. The answer, unfortunately, is that for the most part policy holders will not be covered.

"The standard business interruption policy only applies when the business sustains direct physical loss or damage, such as a fire," says James Lynch, FCAS MAAA, chief actuary and senior vice president of research and education of the Insurance Information Institute. "Business interruption can also apply when a nearby business sustains direct physical loss or damage and a civil authority like the government closes all businesses as a result."

Viruses don't actually break anything. As Michael Menapace, a partner at Wiggin and Dana and professor of insurance law at Quinnipiac University School of Law, told Jeff Dunsavage of the Insurance Information Institute: "The virus...[compared to a fire or broken windows from wind damage], leaves no visible imprint. Left alone, it can’t survive long and, after it has perished, whatever it was attached to is as good as before."

Even all-risk business interruption insurance has exclusions. And, especially since the SARS outbreak of 2003, those exclusions have tended to include losses from viruses and communicable diseases, Dunsavage notes.

Payment protection insurance

 Payment protection insurance (PPI), also known as credit insurance, credit protection insurance, or loan repayment insurance, is an insurance product that enables consumers to ensure repayment of credit if the borrower dies, becomes ill or disabled, loses a job, or faces other circumstances that may prevent them from earning income to service the debt. It is not to be confused with income protection insurance, which is not specific to a debt but covers any income. PPI was widely sold by banks and other credit providers as an add-on to the loan or overdraft product.

PPI usually covers payments for a finite period, typically 12 months, in which case they might be marketed as short-term income protection insurance (STIP). For loans or mortgages this may be the entire monthly payment, for credit cards it is typically the minimum monthly payment. After this point the borrower must find other means to repay the debt, although some policies repay the debt in full if they are unable to return to work or are diagnosed with a critical illness. The period covered by insurance is typically long enough for most people to start working again and earn enough to service their debt. PPI is different from other types of insurance such as home insurance, in that it can be quite difficult to determine if it is right for a person or not. Careful assessment of what would happen if a person became unemployed would need to be considered, as payments in lieu of notice (for example) may render a claim ineligible despite the insured person being genuinely unemployed. In this case, the approach taken by PPI insurers is consistent with that taken by the Benefits Agency in respect of unemployment benefits.

Most PPI policies are not sought out by consumers. In some cases, consumers claim to be unaware that they even have the insurance. In sales connected to loans, products were often promoted by commission based telesales departments. Fear of losing the loan was exploited, as the product was effectively cited as an element of underwriting. Any attention to suitability was likely to be minimal, if it existed at all. In all types of insurance some claims are accepted and some are rejected. Notably, in the case of PPI, the number of rejected claims is high compared to other types of insurance. The rare customers who deliberately seek out the policy may have little recourse when they discover it is of no benefit.

As PPI is designed to cover repayments on loans and credit cards, most loan and credit card companies sell the product at the same time as they sell the credit product. By May 2008, 20 million PPI policies existed in the UK with a further increase of 7 million policies a year being purchased thereafter. Surveys show that 40% of policyholders claim to be unaware that they had a policy.

"PPI was mis-sold and complaints about it mishandled on an industrial scale for well over a decade." with this mis-selling being carried out by not only the banks or providers, but also by third party brokers. The sale of such policies was typically encouraged by large commissions,[6] as the insurance would commonly make the bank/provider more money than the interest on the original loan, such that many mainstream personal loan providers made little or no profit on the loans themselves; all or almost all profit was derived from PPI commission and profit share. Certain companies developed sales scripts which guided salespeople to say only that the loan was "protected" without mentioning the nature or cost of the insurance. When challenged by the customer, they sometimes incorrectly stated that this insurance improved the borrower's chances of getting the loan or that it was mandatory. A consumer in financial difficulty is unlikely to further question the policy and risk the loan being refused.

Several high-profile companies have now been fined by the Financial Conduct Authority for the widespread mis-selling of PPI. The Financial Conduct Authority (FCA) fined Clydesdale Bank £20,678,300 for serious failings in its PPI complaint handling processes between May 2011 and July 2013. This is the largest ever fine imposed by the FCA for failings relating to PPI. Clydesdale agreed to settle at an early stage of the FCA's investigation and therefore qualified for at 30% stage 1 discount. Were it not for this the FCA would have imposed a financial penalty of £29,540,500. Alliance and Leicester were fined £7m for their part in the mis-selling controversy, several others including Capital One, HSBC Finance and Egg were fined up to £1.1m. Claims against mis-sold PPI have been slowly increasing, and may approach the levels seen during the 2006–07 period, when thousands of bank customers made claims relating to allegedly unfair bank charges. In their 2009/2010 annual report, the Financial Ombudsman Service stated that 30% of new cases referred to payment protection insurance. A customer who purchases a PPI policy may initiate a claim for mis-sold PPI by complaining to the bank, lender, or broker who sold the policy.

Slightly before that, on 6 April 2011, the Competition Commission released their investigation order designed to prevent mis-selling in the future. Key rules in the order, designed to enable the customer to shop around and make an informed decision, include: provision of adequate information when selling payment protection and providing a personal quote; obligation to provide an annual review; prohibition of selling payment protection at the same time the credit agreement is entered into. Most rules came into force in October 2011, with some following in April 2012.

The Central Bank of Ireland in April 2014 was described as having "arbitrarily excluded the majority of consumers" from getting compensation for mis-sold PPI, by setting a cutoff date of 2007 when it introduced its Consumer Protection Code. UK banks provided over £22bn for PPI misselling costs – which, if scaled on a pro-rata basis, is many multiples of the compensation the Irish banks were asked to repay. The offending banks were also not fined which was in sharp contrast to the regime imposed on UK banks. Lawyers were appalled at the "reckless" advice the Irish Central Bank gave consumers who were missold PPI policies, which "will play into the hands of the financial institution."

Calculations

The price paid for payment protection insurance can vary quite significantly depending on the lender. A survey of forty-eight major lenders by Which? Ltd found the price of PPI was 16–25% of the amount of the debt.

PPI premiums may be charged on a monthly basis or the full PPI premium may be added to the loan up-front to cover the cost of the policy. With this latter payment approach, known as a "Single Premium Policy", the money borrowed from the provider to pay for the insurance policy incurs additional interest, typically at the same APR as is being charged for the original sum borrowed, further increasing the effective total cost of the policy to the customer.

Payment protection insurance on credit cards is calculated differently from lump sum loans, as initially there is no sum outstanding and it is unknown if the customer will ever use their card facility. However, in the event that the credit facility is used and the balance is not paid in full each month, a customer will be charged typically between 0.78% and 1% or £0.78 to £1.00 from every £100 which is a balance of their current card balance on a monthly basis, as the premium for the insurance. When interest on the credit card is added to the premium, it can become very expensive. For example, the cost of PPI for the average credit card in the UK charging 19.32% on an average of £5,000 each month adds an extra £3,219.88 in premiums and interest.

With lump sum loans PPI premiums are paid upfront with the cost from 13% to 56% of the loan amount as reported by the Citizens Advice Bureau (CAB) who launched a Super Complaint into what it called the Protection Racket.

When interest is charged on the premiums, the cost of a single premium policy increases the cost geometrically. The above secured loan of £25,000 over a 25-year term at 4.5% interest costs the customer an additional £20,221.74 for PPI. Moneymadeclear calculates the repayment for that loan to be £138.96 a month whereas a stand-alone payment protection policy for say a 30-year-old borrowing the same amount covering the same term would cost the customer £1992 in total, almost one-tenth of the cost of the single premium policy.

PPI claims

Payment Protection Insurance can be extremely useful; however, many policies have been mis-sold alongside loans, credit cards and mortgages. PPI mis-selling may leave the borrower with a policy of no use to them if they need to make a claim. Reclaiming PPI payments and statutory interest charges on these payments is possible either by the policyholder or via a lawyer or claims management company.

If the borrower at the time of the PPI claim owes money to the lender, the lender will usually have a contractual right to offset any PPI refund against the debt.

The first ever PPI case was in 1992–93 (Bristol Crown Court 93/10771). It was judged that the total payments of the insurance premium were almost as high as the total benefit that could be claimed. A 10-year non disclosure clause was put in place as part of the settlement. After 10 years, a copy of the judgement was sent to the Office of Fair Trading and Citizens Advice Bureau. Soon after, a super complaint was raised.

The judicial review that followed hit the headlines as it eventually ruled in the favour of the borrowers, enabling a large number of consumers to reclaim PPI payments. To date, £38.3 billion has been repaid to consumers (May 2020).

In 2014, a PPI claim from Susan Plevin against Paragon Personal Finance revealed that over 71% of the PPI sale was a commission. This was deemed as a form of mis-selling. The Plevin case has caused the banks and the Financial Ombudsman to review even more PPI claims.

PPI claim companies are currently one of the most common sources of internet click bait, often using misleading information to attract interest from casual browsing.

Statistics

UK banks have set up multibillion-pound provisions to compensate customers who were mis-sold PPI; Lloyds Banking Group have set aside £3.6bn, HSBC have provisions of £745m, and RBS estimated they would compensate £5.3bn. PPI has become the most complained about financial product ever.

Credit life insurance in the United States

Credit life insurance is a type of credit insurance sold by a lender to pay off an outstanding loan balance if the borrower dies.[20] Once the loan is paid off with the credit life insurance, there would be no claim on the borrower's estate. Credit life insurance is charged upfront, rather than spread over the life of the loan. A common example of a loan that can include credit insurance is an installment loan.

The sale of credit life insurance has been controversial in many cases. For example, consumers are sometimes led to believe credit life insurance is required when added to loan contracts. When a lender sells more credit life insurance than is required to pay off the loan, the cost of the premiums is inflated along with the amount of the loan, which increases the amount of interest charged and the amount the consumer has to repay.

Terms and conditions for loan APR and fees vary from state to state and some are comparatively vague. For states that do not cap interest rates for installment loan balances, there are often unconscionable provisions in place.

For lenders, credit life insurance loss ratios typically reach 44%, meaning 44% of premiums paid on the credit life insurance product are paid back in claims, compared to non-credit insurance product loss ratios of at least 70%. While many states cap interest and loan fees, lenders use products such as credit life insurance to increase profit and the overall cost of loans.

States where the sale of credit insurance is authorized were found to include at least one type of insurance included with loan contracts in 80% of cases. On average, the contracts analyzed included 2.67 insurance and other ancillary products. Consumers who refinance loan can be adversely affected by credit insurance because most of the money that consumers typically pay before refinancing is applies to fees and interest.

The Federal Trade Commission has issued a consumer alert concerning various types of credit insurance, including credit life insurance. The FTC consumer alert includes credit insurance shopping tips for consumers seeking a loan.

Advocates for credit insurance products argue consumers that are not insurable could benefit from a product such as credit life insurance rather than standard life insurance as no medical exam is required in the former scenario. In the 9 states that have community property laws in place, the surviving party could be responsible for the debtholder's repayment without life insurance or credit life insurance in place.

Collateral protection insurance

 Collateral Protection Insurance, or CPI, insures property held as collateral for loans made by lending institutions. CPI, also known as force-placed insurance and lender placed insurance, may be classified as single-interest insurance if it protects the interest of the lender, a single party, or as dual-interest insurance coverage if it protects the interest of both the lender and the borrower.

Upon signing a loan agreement, the borrower typically agrees to purchase and maintain insurance (that must include comprehensive and collision coverage for automobiles, and hazard, flood, and wind coverage for homes), and list the lending institution as the lienholder. If the borrower fails to purchase such coverage, the lender is left vulnerable to losses, and the lender turns to a CPI provider to protect its interests against loss.

Lenders purchase CPI in order to manage their risk of loss by transferring the risk to an insurance company. Unlike other forms of insurance available to lenders, such as blanket insurance that impacts borrowers that have already purchased insurance, CPI affects only uninsured borrowers or lender-owned collaterals, such as auto repossession and home foreclosure.

Additionally, depending upon the structure of the CPI policy chosen by the lender, the uninsured borrower may also be protected in several ways. For instance, a policy may provide that if collateral is damaged, it can be repaired and retained by the borrower. If the collateral is damaged beyond repair, CPI insurance can pay off the loan.

How CPI works

When a borrower takes out a loan for a home or vehicle at a lending institution, he or she signs an agreement to maintain dual-interest insurance, protecting both the borrower and the lender with comprehensive and collision coverage on the vehicle or hazard, wind, and flood on the home throughout the life of the loan. The borrower provides proof of insurance to the lender, which is verified by the CPI provider, which also acts on behalf of the loan servicer as an insurance-tracking company.

If proof of insurance is not received by the CPI provider, notices are sent to borrowers in the name of the loan servicer, prompting them to obtain required coverage. If responses to notices are not received, the lending institution may choose to have CPI coverage “force-placed” on the borrower’s loan to protect its interest from damage or loss, leaving the borrower empty-handed.

The lending institution passes the premium charge on to the borrower by adding the premium to the loan principal and increasing the loan payments. If the borrower subsequently provides proof of insurance, a refund is issued, otherwise, the premiums are rolled into the loan.

Throughout the life of a loan, the CPI provider monitors proof of insurance to ensure that policies remain in force. If policies lapse, notices are sent in accordance with the procedure outlined above, and CPI is backdated to fill in any coverage gaps.

Past problems

Interest in collateral protection insurance increased in the late 1980s when, in response to a bank crisis, regulators recommended that assets securing loans be insured and, if borrowers did not obtain insurance, that lenders obtain CPI. The rise in CPI activity generated by this recommendation also coincided with a number of consumer complaints, including suits from borrowers.

Borrower lawsuits were often prompted by lenders’ providing inadequate disclosure regarding the right to force-place CPI policies, force-placing policies with unnecessary coverages, and not disclosing they might be making a commission on the transaction. Additionally, some CPI providers had administrative problems with their programs, including the inability to receive and process insurance documents in a timely manner and ineffective tracking technology, and the inability of some providers to reamortize the loan payments resulting in the "stacking" of CPI premiums. These problems resulted in sending unnecessary letters to borrowers, issuing policies to borrowers who were in fact insured, and delays in processing premium refunds when proof of insurance was received, all of which served to exacerbate borrower complaints.

In July, 2017 a class action law suit was filed against Wells Fargo, and its CPI vendor, National General. The lawsuit alleged, among other things, that the CPI Policies they placed were duplicative, unnecessary, and overpriced. Wells Fargo and National General denied each and all of the claims and allegations of wrongdoing. However, a settlement was granted preliminary approval by the Court on August 5, 2019.

Market response and current state

In automobile CPI, lenders improved their contract language to address the disclosure problems that existed in the past. Additionally, the practices and supporting technologies of the automobile CPI market have evolved since the 1980s. Today, leading automobile CPI providers provide online tracking systems that are updated in real time and are used by providers, borrowers, and lenders to communicate and coordinate on insurance-related issues. Automobile CPI providers have also implemented electronic data interchange (EDI) with borrowers’ private insurance carriers in order to maintain current information on required insurance.

Because of the improvements made in automobile CPI administration, interest in automobile CPI insurance again increased through the early 2000s to the present day. Additionally, a driving factor behind the growth in the automobile CPI marketplace has been in the longer duration of loans and higher financed amounts. For instance, by 2014 the average length of a new auto loan had reached 66 months, and the average amount financed for a new vehicle is $27,612, up $964 from 2013. The longer the term of a loan and the higher the amount financed, the more likely it is that a borrower will be in a negative-equity, or “upside-down,” situation. Borrowers who are upside down are also more likely to default on loan payments, resulting in more repossessions for lenders who then must deal with uninsured damage to repossessed vehicles.

Mortgage protection insurance controversy

Collateral Protection Insurance on mortgage properties, otherwise known as Mortgage Protection Insurance (MPI) has been under scrutiny in the United States. After the financial crisis of 2007–2008 and the rise in foreclosures, lender purchased "force-placed" or "lender-placed" insurance became more prominent. Controversy has arisen over the price of this insurance, as well as loss ratio discrepancies, agent fees, and the relationships between the banking institutions and the insurance companies, which resulted in a regulatory investigation and settlement in the state of New York in 2013, eventually including both Assurant and QBE, which together accounted for 90% of the market. The defaulted borrower, or in many cases the owner of the mortgage such as the Fannie Mae or Freddie Mac, ultimately pay for the insurance.

In March 2013, the FHFA (which has a conservatorship over Fannie and Freddie) proposed to disallow commission payments by insurance companies to the banks servicing its mortgages, and in November 2013 the FHFA banned the practice, calling it a "kickback culture".

The Consumer Financial Protection Bureau (CFPB),[9] New York Department of Financial Services (NY DFS), continue to scrutinize Collateral Protection Insurance. The FHFA, CFPB, and the aforementioned states are reviewing and making changes to the Mortgage Protection Insurance (MPI) programs and regulations.