How Insurance Tracking Can Strengthen Your Enterprise Risk Management Strategy
Anne Holtzman, Senior Vice President of Claims & Recovery
Over my many years in the insurance business I have come across far too many lending institutions with weak or poorly run insurance tracking programs, or even no insurance tracking program at all... My dear, dear friends this just won’t do!
The primary purpose of insurance tracking is to track outstanding collateral to ensure your financial investment in these collateralized loans is protected by insurance. However, a well-rounded, well-managed insurance tracking program can do so much more than that.
The most successful insurance tracking programs I’ve seen go beyond mitigating uninsured collateral losses, to achieving these three business objectives:
1. Enterprise Risk Management: Protection from expected and unexpected risks
2. Customer Service: Heightened relationships with consumers
3. Compliance: Simplification of processes and requirements
Listen to the Podcast: Why Insurance Tracking Should Be Part of Your Risk Arsenal
Listen to the Podcast: How to Leverage Insurance Tracking Programs to Strengthen Your Risk Management Strategy
Let’s take a closer look at how insurance tracking can satisfy these core business goals.
1. Enterprise Risk Management
Protection from Expected and Unexpected Risks
Outstanding loan collateral not protected by personal or commercial insurance often poses the largest overall risk to a loan portfolio, in terms of overall loss impact and frequency of exposures. That is why many lenders use insurance tracking as a function of their collateral protection insurance program to protect against these expected, day-to-day risks.
Using insurance tracking and insurance placement programs together to insure unprotected collateral is a very smart – and very necessary – risk management strategy, but you don’t have to stop there.
Your lending institution can also utilize insurance tracking as a core element of your overall enterprise risk management, or ERM, strategy that will help protect your business and consumers in a much larger way.
I have worked with lenders that have been able to proactively leverage information provided by their insurance tracking program to successfully limit exposure from additional, unexpected risks like title fraud, synthetic loan fraud, and catastrophic events.
2. Customer Service
Heightened Relationships with Consumers
Consider all of the types of insurance the standard consumer has, add on top of that the dozens of other daily responsibilities your consumers are managing – insurance can be easily lost in the shuffle. Not to mention insurance is a pretty complex beast – even for those of us who deal with it daily as part our jobs – and your consumers are by no means even close to being experts in the area. Which is why it is a safe assumption your consumers are relying on their lenders and insurers to supply them with any updates relating to their loans and insurance coverage.
Tracking insurance can help you to supply this much-desired service to your consumers.
Often, your consumers may not even be aware that their insurance coverage has lapsed and their investment is unprotected. So if you are able to spot these lapses you can notify them that the lapse has occurred so they can then ensure their property is once again insured and protected. You can take this consumer service one step further by helping them to secure new insurance on the collateral, rather than just informing them of the lapse.
There is a lesson to be learned here as well: Using insurance tracking solely as a tool for force-placing coverage without first notifying your consumers can be quite damaging to your relationships with them.
If you automatically slap a more expensive lender-placed insurance policy onto consumers’ loan without first adequately notifying them of the lapse in coverage, you could greatly damage your relationships with them – namely with those consumers who are in good financial standing and pay their bills on time. To preserve your relationships with consumers, you should notify them about a lapse in their coverage so they have a chance to find more affordable coverage themselves.
To offer the most value to your consumers, make sure notifications are accurate, timely, and friendly (and compliant, of course). It could leave quite a bad taste in your consumer’s mouth if, for example, you were to send out a notification to him or her and they did not in fact have a lapse in coverage. For this reason alone you need to ensure your consumer notifications are consistent and trustworthy.
In the case of a catastrophic event, you can even use consumer notifications as a way to reach out to your consumers in affected areas to let them know that you are doing your part to help.
Simplification of Processes and Requirements
Compliance requirements have always been a big “to-do” for our industry; and this is true now more than ever. The way lending institutions handle regulatory requirements have gone under the microscope, especially in relation to insurance tracking processes and notifications. Consumer notification compliance requirements are particularly tricky as they have to adhere to standards in all three of the following areas:
• Data, time, and manner in which the notices are sent
• Types of notices used
• Language in the notifications
So how can insurance tracking programs alleviate the burden of these compliance requirements without much impact to your business functions?
The key is to partner with a qualified, experienced vendor that will proactively consult with you on an ongoing basis about compliance requirements that affect your lending practices, geography and consumer base. By working with such a partner, you can ensure you are consistently adhering to all new or reformed rules and regulations while not having to put in the time and resources to keep track of these ever-changing requirements.
This consultative role filled by an insurance tracking partner can be especially helpful in assisting your institution to comply with temporary requirements set forth by FEMA and other governing bodies in areas affected by a declared catastrophic event. Such requirements may affect the following areas of your business:
• Consumer notifications
• Insurance & loan premiums
Leveraging the Right Vendors
But the benefits of partnering with a vendor go way beyond addressing compliance requirements. In fact, outsourcing insurance tracking and placement is usually the best route to take for many reasons, regardless of whether you can or can’t do it yourself.
The key to adopting a strong, successful program is to partner with a vendor that has the experience, wherewithal, and administrative support necessary to consistently perform the following valuable services in consultation with your lending institution:
1. Risk Management:
• Track your entire loan portfolio in real-time, regardless of borrower, status, age, state, etc.
• Send weekly reports of collateral that is no longer covered by insurance, so you can remedy those right away
• Inform you of how much of your entire portfolio is prone to risk on any given day, so you can properly & regularly assess you risk appetite
• Supply you with a working knowledge of your consumers and territories affected by a catastrophic event, should one occur
2. Customer Service:
• Send accurate, timely notifications to consumers about uninsured property
• Help consumers locate affordable insurance options for their property
• Educate your consumers about future and present risks
• Protect relationships with consumers, namely those in good standing
• Setup practices and processes during a natural disaster that aim to inform and help consumers address their risks
• Provide ongoing education and consultation on compliance standards required of your insurance tracking program
• Perform compliance reviews on behalf of your institution to ensure you remain compliant
• Consult on implementation of temporary requirements enforced during a national catastrophe
The strongest insurance tracking partners will consult with your business to build and sustain a program that fits your culture and the culture of your consumers.
So how exactly are insurance tracking vendors able to promise these valuable services on a consistent basis, you ask?
The answer is fairly simple: Data.
Leveraging the Right Data
A good insurance tracking partner will track and report any loan collateral that goes from an insured status to a non-insured status, in real time, so that they can work with lenders to assess how that newly unprotected collateral is adding to the overall risk on the entire loan portfolio.
The more experienced insurance tracking vendors are able to take this one step further by spotting and reporting red flags in the data that may indicate current and future risk exposures so you can quickly, accurately and compliantly address and prevent exposure to these additional risks, such as:
• Catastrophic events
• Title fraud
• Synthetic loan fraud
• Insurance fraud
Lenders are better equipped to act faster and more effectively when a disastrous event occurs if they already have a clear picture of the amount and location of their collateral that is more historically prone to these events. With this relevant, detailed risk report readily available, lenders are able to more successfully prevent, manage, and respond to risk exposures resulting from these catastrophic events.
Forming this complete understanding of your entire portfolio’s risk potential can only be done if you are tracking all of your outstanding loans. In other words, no insurance tracking = no way of looking at how much of your collateral is at risk of certain types of exposure, so no way of proactively addressing these potential exposure.
To end, answer “True” or “False” to the following statement: My institution is proactively using an insurance tracking program that acts as a true risk management strategy that can mitigate numerous types of risk, strengthen relationships with consumers, and simplify compliance requirements.
If you answered True to this statement: Good on you! You get a gold star for being ahead of the curve!
If you answered False to this statement: Consider taking action sooner rather than later to establish an insurance tracking program that goes way beyond mitigating risks on your collateralized loans.
Listen to our podcast on Why Insurance Tracking Should Be Part of Your Risk Arsenal.
Listen to our podcast on How to Leverage Insurance Tracking Programs to Strengthen Your Risk Management Strategy.
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