Updated: Mar 26, 2022
YOUR FINANCIAL INSTITUTION REQUIRES THE BORROWER TO PROVIDE AND MAINTAIN PROOF OF INSURANCE, BUT IF YOU ONLY REQUIRE PROOF OF INSURANCE AT LOAN CLOSING, WHAT IS STOPPING THE BORROWER FROM CANCELLING THEIR INSURANCE AFTER THE LOAN CLOSES?
A BLANKET INSURANCE PROGRAM DOES NOT REQUIRE INSURANCE TRACKING TO PROVIDE COVERAGE. right?
correct. HOWEVER, IF YOU ARE NOT TRACKING THE INSURANCE STATUS COVERING YOUR COLLATERAL, DO YOU KNOW HOW MANY LOANS ARE BEING COVERED BY THE BLANKET INSURANCE PROGRAM? THERE ARE MORE LOANS BEING COVERED BY YOUR BLANKET INSURANCE PROGRAM IF YOU ARE NOT TRACKING THE BORROWER'S PROOF OF INSURANCE. THE MORE LOANS BEING COVERED BY YOUR BLANKET INSURANCE PROGRAM, THE GREATER THE RISK OF CLAIMS PAID, WHICH COULD RESULT IN A HIGHER PREMIUM BECAUSE OF A HIGH PAID CLAIM LOSS RATIO.
DO YOU EVER PLAN ON CONVERTING FROM A BLANKET INSURANCE PROGRAM TO A FORCE PLACED INSURANCE PROGRAM?
IF YOU ARE KEEPING UP WITH THE INSURANCE INFORMATION FOR YOUR BORROWERS, THIS SWITCH WILL BE MUCH EASIER AND LESS DISRUPTIVE. IF YOU STOP TRACKING AND VERIFYING PROOF OF INSURANCE, YOU WILL HAVE TO BUILD THE INSURANCE DATABASE FROM SCRATCH. causing notifications and a significant amount of borrower involvement.
DO YOU HAVE AN INSURANCE CUSO THAT OFFERS PRIMARY PROOF OF INSURANCE?
IF SO, YOU CAN USE THE INSURANCE TRACKING RECORDS TO MARKET AND SELL PRIMARY PROOF OF INSURANCE FROM YOUR CUSO OR INSURANCE AGENCY. THE INCREASED REVENUE FROM SELLING PRIMARY INSURANCE FROM YOUR CUSO WILL OFFSET ANY EXPENSES ASSOCIATED WITH INSURANCE TRACKING.
what percentage of your portfolio is uninsured and covered by your blanket insurance program?
is it 5%, 10%, 20%, even 30% of your portfolio being covered by your blanket insurance program? if you are not tracking proof of insurance, there is no way to know how much risk is being mitigated to your provider. if the risk being insured on the blanket insurance program is high, it could result in an unsustainable loss ratio. the target number of uninsured borrowers in your portfolio is 1% to 5%.
what's the risk of not having your financial institution listed as loss payee? or, when the borrower has a deductible they can't afford?
your borrower may have insurance, but if your financial institution is not listed as loss payee, will the claim payment be sent to the lender? If your borrower has a $1,500 comp./coll. deductible, will they be able to afford repairs to the collateral if they only have $500 on deposit?
you have blanket insurance covering your collateral, but is it worth the risk not to track the borrowers proof of insurance? only you can decide!