NAFCU Services Blog

By: Anne Holtzman, Senior Vice President of Claims & Recovery, Allied Solutions

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.

The most successful insurance tracking programs I’ve seen go beyond mitigating uninsured collateral losses, to achieving these three business objectives:

Enterprise Risk Management: Protection from expected and unexpected risks

Member Service: Heightened relationships with consumers

Compliance: Simplification of processes and requirements

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 ensure 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, a 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. Member 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. 

3. Compliance

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 the manner in which the notices are sent
• Types of notices used
• Language in the notifications

Listen to our two-part podcast series to learn more about this topic:

Listen to Part 1  Why Insurance Tracking Should Be Part of Your Risk Arsenal

Listen to Part 2  Leverage Insurance Tracking Programs to Strengthen Your Risk Management Strategy

Allied Solutions is the NAFCU Services Preferred Partner for Insurance- Bond, Creditor Placed (CPI), Guaranteed Asset Protection (GAP), and Mechanical Breakdown Protection (MBP). More educational resources and partner contact information are available at www.nafcu.org/allied. Sign up for Allied Solutions’ newsletter to receive ongoing education on collateral and compliance risk management.