A Collateral Protection Insurance (CPI) is protection offered to insurance providers which insures the collateral or property held for the loans forwarded. Such type of insurance is usually found in the auto insurance market or in which a vehicle is provided as collateral. CPI may be classified as single-interest insurance if it shelters the interest of the lender, a single party, or as dual-interest insurance coverage if it shields the interest of both the loan provider and the loan applicant who offers the collateral.

• In most cases a borrower is required to possess comprehensive collision cover; however if such a cover is not purchased then the risk to the lender increases dramatically. In order to mitigate this risk the lender can turn to CPI for protecting its interests in the asset provided as collateral. The need for CPI arises because of the fact that approximately 15 percent of the drivers in the United States are uninsured. This necessitates some type of cover for the lender in case there is damage to the vehicle which is very likely.
• Lenders purchase CPI in order to transfer the risk to an insurance company and CPI only affects uninsured borrowers. Moreover, depending on the structure of the CPI opted by the lender, it may also pay off the loan if the collateral is damaged beyond repair. A CPI can also empower a borrower to repair and retain the vehicle which works well with the lenders as well as the borrower.
• Collateral Protection Insurance works in a simple manner; the borrower signs a dual interest insurance which protects the borrower and the lender with comprehensive and collision coverage. The borrower then provides proof of insurance which is verified by the CPI provider. If the proof is not sent then the CPI is forced-placed after notices are left un-responded by the lender and the borrower. This means that a certain amount is added to the loan payments and if proof of cover is provided by the borrower then the applicable amount is refunded to the borrower.
• CPI has faced many problems in the past which have resulted in unnecessary harassment of borrowers and unreasonable earnings for some lenders. Borrowers were not made aware that a CPI could be forced placed on their account and the payments may increase. This resulted in unexpected expenses for the borrowers and also promoted distrust in the market. Furthermore, the inefficiency of some of the CPI providers meant that either borrowers were insured once again (even though in possession of CPI or comprehensive and collision) or insured borrowers being sent letters and notices that they were in fact uninsured.
• As a result of the above mentioned problems, lenders enhanced their contract language to address the disclosure problems that were present in the past. Furthermore, the practices and supporting technologies of the CPI market have developed since the 1980s. Nowadays, important CPI providers offer online tracking systems that are updated in real time and are utilized by providers, borrowers, and lenders to communicate and synchronize on insurance linked problems.

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