Many lending institutions made the decision long ago to outsource the important function of tracking insurance on secured loans including auto, mortgage, and equipment portfolios. From the outside looking in, this sounds like a perfectly logical process enhancement. After all, the very nature of making sure your collateral is insured can be cumbersome for an administrative staff already stretched thin with other duties. Unfortunately, sometimes the best-laid plans end up causing more grief than relief!
Insurance tracking companies have become big business. Numerous technology advancements have streamlined the process, such as data interface programs with national insurance providers like State Farm, Nationwide, Geico, and even The General, to name a few, that expedite the verification of valid coverage on your loan. Traditional Collateral Protection Insurance (CPI), however, is not an inexpensive proposition for your borrowers--who obviously can’t afford their own insurance--sometimes their fault, but not always (life happens!). These force-placed insurance premiums can cost anywhere from 15-22% annually of the loan balance. Ouch! No wonder these customers struggle to pay their new loan payment that’s suddenly increased by upwards of 20% or more (not to mention the policy fees that are tacked on as well). As a lender, have you reviewed how much insurance premium you’re charging off on these force-placed loans? Even though a lot of CPI plans offer some type of premium deficiency reimbursement--a calculation of unearned premium that is refunded based on a charge-off date--this endorsement typically has a loss-cap associated with it, which is easily exhausted.
Read our blog post: Worried about rising collateral protection premiums?
Lenders who assume the tracking function of primary borrower insurance on their secured loans will somehow disappear once a third party tracking agent is employed are often disenfranchised by the amount of work they still need to employ for paying an independent company to handle the service. There are still data uploads to complete on a weekly or bi-weekly basis and reports to review to determine who should be force-placed or not--not to mention the customers who are force-placed when they actually have their own insurance. Maybe they just switched insurance carriers or just paid their required premium. This undoubtedly creates difficult conversations, often with upper management, that lead to customer dissatisfaction and unwelcome publicity for your institution. How much does one disgruntled customer cost you in terms of lost future business? Word of mouth travels fast, and negative experiences by your customers can be very damaging to the bottom line in community banks and credit unions.
If you’re tired of dealing with the following regarding your tracking company…..
- More work for your internal staff than you bargained for when you signed up
- Customer “noise” based on false force-placements
- Increased charge-offs because of inflated insurance premiums
…..then you might want to consider an alternative solution to mitigate the risks associated with uninsured customers. A blanket policy eliminates the need to track or force-place insurance altogether. Since no third party company is tasked with tracking insurance, there are no negative interactions with your borrower. Your institution is simply covered in the case of an uninsured loss.
Read our blog post: Could Your Collateral Protection Insurance or CPI Program Bring You Legal and Compliance Troubles?
Unitas Financial Services is a national leader and innovator in providing tailored blanket coverage programs for community lenders like you. Get in touch if you would like to learn more or discuss your unique situation.
