A lender’s determination to extend a loan or not often depends on the value of the collateral and the stipulation that the borrower must maintain insurance coverage on said collateral. A lender must determine the loan to value ratio and what they could sell the collateral for in order to mitigate their loss if the loan defaults, and be assured that their interest in the collateral is always protected. The portfolio protection program your institution chooses can mean the difference in risk vs. safety for your loan programs.
Even in today’s dynamic environment of increased regulations and lending oversight, many community lenders remain committed to some old-school processes within their loan operations. In some cases, inefficiencies and frustrations can be common issues that are connected to these burdensome administrative processes. In a time when many community lenders are adopting a “get lean” approach to their operations, for some reason, these old-school philosophies remain entrenched. The phrase, “but that is how we have always done it” is uttered often. Why is it that simple change can be so difficult to embrace? Why, from the executives to the loan operations staff, is it often difficult for a community lender to let go of these old-school processes?
As new vehicle sales prices continue to rise, many lenders are feeling the pain in the way collateral protection premiums are calculated. Without any action at all on the part of the insurance company or the lender, your borrowers are paying more and more for coverage. The reason? Collateral Protection premiums are based on a percentage of the loan balance. As vehicle prices increase, loan balances are at all-time highs, and in turn, force-placed insurance premiums are higher than ever.
While many lenders are familiar with blanket coverages designed to eliminate the need to track and force-place insurance on mortgage and titled portfolios, fewer may be familiar with an alternative blanket coverage designed to protect the lender’s commercial equipment portfolio in cases of lapsed insurance coverage.
Lenders have several different options to protect their collateralized portfolios in the event that a borrower fails to maintain insurance. For many years, Collateral Protection Insurance or CPI, also known as force-placed, has been the prevailing product lenders have used to cover this risk. But now that blanket protection or VSI is available, many lenders are trying to choose between CPI and VSI.
Across the world, machines are getting smarter. Artificial Intelligence, or the theory and development of computer systems able to perform tasks that typically require human intellect and decision-making, impacting our lives and is already present in our day-to-day lives.
Trust and Relationship
I placed this first intentionally because it is the most important by far. Customers, borrowers, and members want a service provider that is trustworthy and see the bigger picture of a long-term relationship. They will use your products because of the great service you provide, and the value you bring to them as a trusted financial advisor. Good agents and insurance companies operate under the same principles.
For financial institutions to properly protect consumer loan portfolio collateral, there are four basic options to consider when determining what type of portfolio protection insurance is best for them, as well as, their borrowers.
Insurance rates in every sector have risen substantially in recent years, outpacing inflation by a good margin. Here’s a look at some of the stats:
Health Insurance costs have gone up by over 20% in the last 10 years
Auto Insurance rates have gone up by more than 30% in the last 10 years
Homeowner Insurance premiums have risen over 40% in the last 10 years
Natural disasters, home prices, and the increased cost of construction have affected homeowner insurance pricing the most. Health insurance premiums have risen due to many factors. Why have auto-related premiums gone up so much? Here are the top 5 reasons why auto insurance rates are going up:
There are nearly 270 million vehicles registered in the United States, making the country the second largest vehicle market after China. Despite having 1.2 cars per driver, the US continues to see growth in new and used auto sales and auto loan origination. Lenders know that auto loans today look entirely different than those from the past. Gone are the days of predominantly three- to five-year loan terms. Nowadays, most loans are made with terms of five to seven years. While this may not seem like a significant change at first glance, there are many potential ramifications for drivers and lenders once you look under the hood, so to speak, of these trends. Read on to find out how these factors affect lender risk management.