To properly answer that question, you have to look at the entire program and the many different parts that are often overlooked. There are four different coverage sections that you should be evaluating:Lender-placed Hazard
Coverage for REO property
Liability insurance for REO property
While rates are important, it is imperative that you have the most comprehensive coverage. Many policies only cover certain types of loss (named perils), and others have a broader form of coverage known as special form protection. Which one do you have? There are also differences in the way losses are settled on these policies. Some policies require you to insure for at least 80% loan-to-value, while others only settle certain types of loss based on the actual cash value or depreciated amount of the damaged property. The best policies don’t have these limitations (but they are more expensive). If you haven't reviewed your lender-placed and liability coverage in a while, it would be a good idea to spend the time reading through the policy or meet with your agent and ask them to review the types of coverages you have.
It is also wise to consider the limits of the program and the amount of coverage you can place. Some companies only allow you to protect up to a specific dollar amount under the master policy, while others have higher limits and other ways to insure higher dollar value properties at a lesser rate. Lender-placed rates can be expensive for larger loan balances, so you need a company that can think outside of the box and discover ways to save you and your customers dollars. On REO property, there are more deductible options available which can also bring down your cost.
Some lenders place REO hazard and liability protection on their financial institution package policy. More lenders, however, are moving to place these risks through their lender-place provider, since they are more specialized in covering high-risk properties. Normally, the coverage and administrative systems are superior with lender-place providers. It also eliminates the risk of having large claims from your high-risk properties against your package policy.
Administration of a lender-placed program is also a key factor. You want to find a provider that has a user-friendly online system and provides all the required notices and billing options you need. Not all programs are created equal. Customer service is an important part of the administration of lender-placed programs. Is the company quick to respond? Are they comparable in size to your institution or are they more similar to a big-box company? How important will you be on their priority list? Will you have a point of contact that you can always call? If you are a small to medium fish in their large territory, will you receive the best service and attention?
The Decision Process
Involve your loan servicing and operations staff that will be directly using the administrative part of the system in the decision process. Make sure they receive a full demonstration of the system. They know it best and can help you avoid ending up with a system that causes more headaches than it’s worth. Is your staff overjoyed with the current system and customer service? Do they receive slow responses on customer service requests? Technology is allowing small-to-midsize providers to have all the bells and whistles of large national providers, while also providing the local and regional customer service that you should expect. To increase staff efficiencies and overall satisfaction, choose the provider that has an easy to use system and provides excellent customer service.
Lender-Placed Hazard and Flood programs are all very different and must be evaluated carefully. If you haven’t done a thorough review of yours in recent years, you could be missing out on some significant new developments in coverage and in the systems behind the coverage. Find a company that services you like you serve your customers and can offer all the components of a great lender-placed plan under one roof. Having hazard, flood, REO, and REO liability with one vendor can make life simpler and avoid gaps in coverage that can be painful when a loss isn’t covered.
There is a newer alternative to traditional Lender-placed programs called Blanket Mortgage Insurance that can save time, money and negative customer interactions. Click below to find out more.