Navigating Risk: Insurance Tracking Made Easy

Transfer Risk, Retain Control and Manage Borrower Impact 

Managing risk is a complex endeavor that involves credit qualifications, lending stipulations, data management, insurance verification—the list goes on! A critical aspect of the risk management process for any lending institution is ensuring collateral is properly insured.

Lenders have traditionally used three approaches to manage insurance and ensure their collateral is protected and compliant:

1. Tracking Insurance Internally
   
   This option requires internal insurance expertise, significant FTE (full-time equivalent) support, and offers no transfer of risk.
2. Blanket Policies
   
   Blanket policies can be useful in limited-use situations, but as a comprehensive solution, they often cause lenders to lose control and visibility into which borrowers have insurance. This loss of control can lead to escalating premiums, even in the absence of losses. (See our blog post, Exploring Options for Protecting Your Collateral: Insurance Tracking vs. Blanket Policy).
3. Outsourcing Insurance Tracking to a Third Party
   
   As with any outsourced service, success depends entirely on your chosen company. The benefits of outsourcing to the right provider include:
   • Processing incoming loan and insurance data, documents, and insurance mail.
   • Providing regular reporting to identify when collateral is exposed to loss.
   • Freeing up internal staff to focus on more productive work.
   • Eliminating the need to train or hire in-house insurance expertise.
   • Ensuring compliance requirements are met.
   • Providing lender-placed insurance.

There are many compelling reasons to outsource your insurance risk management. However, it’s crucial to choose a provider whose goals align with those of the lender. Most insurance tracking programs are developed by insurance companies with the primary objective of driving force-placed premium revenue into their income stream. This focus often conflicts with the lender’s goals and can lead to unwanted borrower impacts and compliance issues.

To avoid these conflicts, it is important to select a provider that executes an insurance tracking program that matches the lender’s specific needs. This often means finding a provider that prioritizes collaboration with the lender over force placing insurance. Successful insurance tracking provider partnerships allow the lender to maintain control over the tracking process while acting as the lender’s back office. A reliable provider should:

• Provide a written guarantee that transfers risk away from the lender.
• Offer easy online access to organized loan information, insurance data, and documents.
• Deliver real-time reporting of insurance exceptions that expose collateral to property loss.
• Ensure proper notice formatting and timing to meet compliance requirements.
• Allow access to “pre-notice” reporting so lenders can view and control borrower notices requesting proof of insurance.
• Accurately calculate the required coverage amount for collateral insurance.
• As a last resort, provide lender-placed insurance in a way that minimizes borrower impact while keeping the lender compliant.

In a nutshell, a good tracking provider should alleviate much of the burden of insurance tracking while acting as the lender’s back office. They should provide tools that allow the lender to retain full control of their tracking process.

At AFR Services, our primary mission is to help lenders manage risk, including the risk of noncompliance. That’s why we are first and foremost an insurance tracking provider. While we offer lender-placed insurance when necessary, our priority is to minimize its use by obtaining current insurance from property owners. By prioritizing insurance tracking, AFR helps lenders avoid the unnecessary costs and irritations accompanying lender-placed insurance.

Learn more about how AFR Services keeps lenders on the right side of the force-placement balance.