Skip Vehicle Coverage More Important Than Ever

With the average price of a new vehicle exceeding $37,000 in 2019, lenders are carrying more risk than ever when it comes to lapsed insurance policies. With Blanket Lenders Single Interest (LSI) coverage, lenders are protected from any uninsured damage or theft of the loan collateral. One component of the Blanket LSI or VSI policy—skip vehicle coverage—provides additional protection if the borrower or automobile cannot be located. Below are reasons lenders need skip vehicle coverage in 2020 and beyond.

Auto Lenders Need Skip Vehicle Coverage

Skip vehicle coverage is an important component of a broader LSI policy. Over the past 10 years Skips by borrowers have increased relative to Uninsured Physical Damage claims. This means for an auto lender the Skip charge-off risk has exceeded the charge-off risk of an insurance policy lapse and subsequent Physical Damage loss to a vehicle collateral.

Skip Coverage under a Blanket LSI or VSI policy gives the lender two means of recovery:

  • The professional skip tracing managed by Lee & Mason recovers the majority of Skip vehicles reported as claims. These vehicles are recovered and sold at auction to reduce the lender’s charge-offs
  • A smaller percentage of the Skip vehicles are not located by Lee & Mason’s contracted skip trace companies, and the lender is paid for the collateral value based on the policy terms. These Skip claim payments also reduce the lender’s charge-offs.

In fact, the recovered Skip vehicles (per 1 above) which Lee & Mason finds, and the lender sells at auction, often total far more in recovery dollars to the lender than those which are not found and a claim settlement is made to the lender.

There is third stream of recovery dollars that the lender doesn’t see directly. Once a Skip claim is paid to the lender, Lee & Mason continues its pursuit of that Skip vehicle. It may take months, but Lee & Mason eventually finds and recovers many skip claim vehicles. Lee & Mason sells those vehicles at auction, and the recovery dollars are credited back to the lender’s Blanket Lenders Single Interest policy, helping the policy to remain stable and to be able to absorb more claims in the future.

Besides Skip vehicle coverage, a comprehensive LSI policy will also include Confiscation Coverage should a vehicle or other collateral be seized by federal, state, or local government, and then be sold by that authority. With civil forfeiture laws continuing to expand, placing an auto owner’s collateral at risk whenever should they use the vehicle to transport drugs or use it in other illegal activity. Though not an everyday kind of collateral loss, lenders need to protect themselves against this risk.

In many states, the premium cost of a Blanket Single Interest coverage, including Skip and Confiscation coverage, can be disclosed on the loan agreement and the cost can be passed on to the borrower. The cost becomes part of the loan amount financed, and the cost is collected back by the lender, with interest, over the term of the loan. Lee & Mason can help you improve your single interest coverage with automobile and other collateral skip coverage as part of a broader LSI policy.

Customizing Skip Coverage for Your Portfolio

Lenders who acquire a LSI policy can customize their skip coverage  in a way that makes sense for their portfolios. Skip coverage protects a broad range of consumer loan and lease collateral, including autos, vans, light trucks, motorcycles, RVs, campers, watercraft, and even commercial vehicle and equipment coverage are available, with low and zero-deductible options to reduce premium costs.

When adding Skip Coverage to your Blanket LSI or VSI policy, you have the option of including broad form skip (collateral locate required), plus repossession expense reimbursement, and towing and storage expenses. The decision to add these coverages will depend on your loan portfolio characteristics, and the frequency with which you repossess vehicles (and therefore incur repo fees, towing and storage expenses).

For more information about how skip vehicle coverage can benefit you in 2020 and beyond, contact Lee & Mason today!