When it comes to collateral protection insurance, lenders have more options than ever before. As lenders find out about the expanding use of Blanket Insurance to protect loan collateral, some questions come to mind. This article will help you sort through what is available and determine what options to look at for your financial institution. Should you continue to track and force place? Should you outsource tracking and have the tracker send letters and force place? Or should you move towards blanket insurance protection and eliminate as much of the tracking and force-placing as possible? As you consider these options, here are some questions you can answer to help clarify the best course for your institution:
1. At a high-level view, why am I tracking insurance in the first place?
The main reason for tracking is to identify and protect at-risk collateral where the borrower hasn’t covered the collateral properly. Lenders that have a high rate of loans being properly insured have an incredibly low risk of loss. If only 1-2% of your portfolio is uninsured at any one time, then an even smaller fraction of those would have a loss, and an even smaller number of those will go delinquent. If you realize the risk for you is low (as it is for most) then it makes sense to strongly consider Blanket coverage that eliminates tracking and force placing. The thought here is, “If my risk is low why are we doing all of this work?” However, if you have a much higher rate of uninsured borrowers and have regular losses on collateral, perhaps you should lean towards tracking and force placing.
2. Are tracking and force-placing causing problems and relationship issues with your borrowers?
If not, you or your tracker are doing an excellent job. However, many lenders see blanket coverage as an attractive solution to solve borrower relationships and insurance problems since blanket allows you to collect insurance at closing and then stop all tracking after that. Not tracking and force placing is very borrower-friendly.
3. Is force placing causing higher delinquency or charge offs?
Many lenders tell us that the high cost of force-placed coverage, especially on auto loans and commercial property, raises the payment so high that the borrower cant pay. That premium is still owed for however long it was needed and you could then end up charging off that premium as a loss if the loan does go south. Alternatively, if you employ blanket coverage for your portfolio you and your borrower avoid those premiums and the problems they can cause.
4. Is my main issue internal staffing problems and the cost and quality of the tracking in house?
For lenders in this category, you should consider outsourcing the tracking or moving towards blanket. If you consider outsourcing, lean towards a small to midsize tracker who will give you and your borrowers the attention and good customer service you deserve. You don’t want your institution and borrowers to become simply a number. Ask for references of other lenders your size and call them. Blanket coverage also eliminates internal staffing issues and costs regarding tracking. Both outsourcing (via an automatic coverage endorsement) and Blanket Insurance provide you with 24/7 protection for uninsured loss without having to depend on internal staff to catch something.
We educate lenders on all of the options and guide them through the coverages that are available and how they work. At times we help lenders mix and match these products – customizing coverage by blanketing some portfolios and tracking the rest. There are several ways to protect collateral that didn’t exist before which gives you more control over the best way to protect your portfolio and your collateral.