As times change due to lending trends, technology growth, and the state of the economy, lenders need to be more creative when it comes to building a risk strategy that keeps both them and their borrowers protected. Insurance tracking is one data component that plays an important role in developing that comprehensive plan. Today, we’re breaking down four reasons to consider investing in an insurance tracking program as part of a larger risk strategy.
But first, what is insurance tracking?
Insurance tracking allows lenders to monitor borrowers’ insurance data to ensure their collateral remains protected by understanding the insurance status (or any deficiencies) of a borrower’s policy. An effective tracking system includes gathering information, maintaining and updating information, and interacting with borrowers if necessary.
Many lenders are turning to data to determine the best risk strategy approach for their organization. Lenders want a complete set of data that gives insight on how to protect their portfolio, and active tracking provides an important piece of that picture. Successful programs help lenders stay protected from both expected—and unexpected— risks.
Reason #1: Improve risk exposure monitoring
Implementing a tracking strategy allows institutions to be mindful of accumulating risk and can help minimize that exposure by reducing the number of unprotected collaterals in the portfolio. Tracking can assist in providing data points in real time and give lenders an immediate picture of their current risk exposure. Insurance tracking data, in particular, is helpful when wanting to understand risk exposure in catastrophic situations (such as with natural disasters). The data collected can help give lenders an idea of where their collateral is located and how it may have been affected.
Reason #2: Build a comprehensive strategy
An ultimate goal for lenders is to build a comprehensive risk strategy that both prepares for unexpected losses and minimizes risk. Effectively leveraging all available data is key here. Insurance tracking is one component in building a comprehensive risk management strategy that offers lenders both a way to gather data and a means to follow-up with their borrowers. Knowing and recognizing data trends helps lenders better determine collection and repossession strategies that work for their business.
Reason #3: Inform the borrower
Insurance tracking can also provide an additional benefit of keeping borrowers informed about their insurance coverage. Life happens, and a borrower may legitimately not realize their insurance coverage lapsed or is in some other way inadequate. By tracking their insurance, lenders offer the opportunity to update their borrower that the coverage for their collateral has ended or is deficient, and gives them the opportunity to work out a solution.
Reason #4: Gain data insights, improve recoveries
Insurance tracking gives valuable data insights that can help minimize losses and make sure borrowers remain compliant with their loan or lease agreement. In terms of loss impact and frequency, uninsured collateral poses the highest risk to lenders in their portfolio. The need for data becomes especially important in the unfortunate event that collateral needs to be reclaimed from the borrower. In fact, it’s estimated (according to our Risk and Recovery team) that 70-75% of claim recoveries after repossession are achieved due to the information obtained from insurance tracking. Insurance data can also provide predictors about future borrower behavior as trends show borrowers are likely to discontinue loan payments within 180 days of an insurance policy cancellation.
Why it’s time to invest in 2019.
Insurance tracking has a host of benefits that helps lenders ensure borrowers are maintaining their coverage and helps eliminate or reduce risk due to a real-time assessment of potential losses and insight, especially in a catastrophic situation. When working within a larger risk strategy, insurance tracking offers important data insights that assists in the recovery process.
Allied tracks 18 million vehicle loans through insurance tracking.
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