Many lenders have heard about how blanket portfolio protection can save them time and money, relieve examiner headaches, and make their operations more efficient with a far more customer-centric approach than tracking and force-placed insurance protection. But how is the premium calculated for various blanket protections? Read on to find out what the main considerations are for each type of collateral.
How is Premium Calculated on Blanket VSI?
Blanket VSI premium is rated differently for each insured lender based on that lender’s portfolio. Delinquency percentages, repo levels, past loss history, loan volume, and expected portfolio changes moving forward are all factors. Types of collateral in the portfolio, loan terms, and average loan amounts are also considered. The primary drivers of rate are loan volume, loan portfolio quality, and past loss history. Loss history would primarily be made up of past uninsured damage losses to repossessions and skip losses (borrower and collateral cannot be located). A good agent will price the premium level to reduce future price increases while being fair to the lender and insurer. Pricing from year to year after the program has been in force is primarily based on the ratio of claims to premium since the program started (the last 12-36 months being the most important). Learn more about Blanket VSI Insurance.
How is Premium Calculated on Blanket Mortgage Insurance?
What is the cost of Blanket Mortgage coverage? This varies depending on the portfolio size and risk factors, such as the amount of lender-placed protection typically in force and past claims history on the lender-placed program. Commercial portfolios are usually the most expensive to insure, followed by first mortgages, with home equity and seconds being the least expensive. Many lenders simply add up all the costs of tracking insurance and compare that to the annual cost of the blanket protection. Another factor that must be considered is the cost of hiring a new employee to track insurance as your portfolio continues to grow. Employees have overhead, Blanket Mortgage is scalable, and eliminates human error. Premiums will generally increase proportionally with the size of the portfolio.Learn more about Blanket Mortgage Insurance.
How Premium is Calculated on Blanket Equipment Insurance?
Because of cross-collateralization with real estate on many equipment-secured loans, determining the accurate balance to insure can be a tough task. While VSI premiums can be passed on to borrowers in most states through a line-item charge, the Blanket Equipment premium is normally paid by the lender based on the monthly outstanding balance in the respective portfolio. In certain situations, and when this number is not realistic to obtain due to loan coding, carriers will allow an annual premium payment. Most lenders will recoup the cost of the policy by forecasting future volume and increasing allowable fees such as origination or application charges. Learn more about Blanket Equipment Insurance.
You might want to read our blog post: Could Your Collateral Protection Insurance or CPI Program Bring You Legal and Compliance Troubles?
The High Costs of Tracking
Financial institutions have always faced challenges with properly protecting their loan collateral at an affordable price with the least amount of friction for the customer. Since uninsured losses are rare, especially large losses, lenders try to spend as little as possible on the overhead associated with keeping track of insurance. However, the risk of a large uninsured loss and the regulations dictating that loans be properly tracked, lead to costs that are much higher than desired, as well as negative customer interactions; all of which could be avoided. Here is a list of a few areas where you can save money, and human resources by switching to Blanket Coverage.
- Employee pay, taxes, and benefits
- Management time and expense
- System costs of tracking
- Postage and phone expense
- Letterhead and envelope costs for notification letters
- Training expense
- Examiner scrutiny
Blanket coverage is simple, hassle free portfolio protection insurance.
Read the full blog post: The High Cost of Tracking