Building an Insurance Tracking Program That Does More Than Track Insurance

The primary purpose of an insurance tracking program is to track and maintain insurance data on outstanding collateral, to better understand and manage potential loss exposures on these collateralized loans. However, these programs can go way beyond this function to support much larger business strategies.

When executed and leveraged properly, services offered through a comprehensive insurance tracking program can feed into enterprise-level risk management strategies, while at the same time strengthening relationships with borrowers and simplifying processes.

Let’s take a closer look at how a well-rounded, well-managed insurance tracking program can go far beyond mitigating the risk of uninsured collateral losses.

Enterprise Risk Management

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 risk management strategy. But insurance tracking programs can go way beyond this function to protect credit unions in a much larger way. When built to its full potential, a credit union’s insurance tracking program can be used as a core element of their overall enterprise risk management strategy by helping to better manage current collateral risks, predict future risks and address additional financial loss risks.

The strongest insurance tracking programs can offer a clear picture of a lender’s potential collateral risk exposure at any given time, beyond just insurance-related risks. If a loan portfolio is being properly tracked and monitored, credit unions can access real-time status and location information on loans and borrowers to more effectively address any kind of collateral-related risks, such as risk exposures from defaults, repossessions, delinquencies and disasters of any kind.

By having access to this live data, credit unions can quickly prioritize, address and minimize the potential losses resulting from any one of these risk events, thereby placing them in the position to act more quickly should any such risk event occur. The most dynamic tracking programs can take this one step further – by looking at historical loan, collateral and borrower data to make predictions about potential future risks.

Regular monitoring and review of insurance tracking data can also give credit unions the ability to manage risks beyond the loan portfolio. When this data is properly monitored and understood, red flags can help lenders detect and address early warning signs of other potential risk exposures and financial loss threats, such as identity theft and loan fraud.

Enhanced Borrower Relationships

When used effectively, insurance tracking programs can also help preserve relationships with borrowers. More and more consumers are expecting the “Amazon treatment” in all of their sales and service interactions, requiring all businesses to amplify their standards to meet these heightened expectations. Something as simple as sending important updates to borrowers about their loan or insurance status can actually have quite a positive impact on consumer relationships and trust, and insurance tracking data offers the opportunity to perform this valuable service.

Strong insurance tracking programs offer lenders a working knowledge of changes or updates on any individual loan. Lenders can use this information to notify the impacted borrowers about these changes, thereby helping them to ensure they remain insured and protected while at the same time relieving them of the need to keep track of this information themselves. On the flip side, automatically adding a more expensive lender-placed policy on a borrower’s loan without first notifying them of the lapse in coverage can be quite damaging to these relationships, especially for those members who are in good financial standing and pay their bills on time.

Simplified Processes

Compliance requirements have always been a big “to-do” for credit unions, especially when it comes to insurance tracking processes and borrower notifications. The key to alleviating the burden of these compliance requirements without major impact to business functions is to partner with an experienced insurance tracking provider that proactively sends notifications regarding new or changed compliance requirements affecting lending practices, geography and consumer base. By working with such a partner, credit unions can ensure they are consistently adhering to all 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 with relieving the additional processes and burdens that come with a catastrophic event. Well-rounded partners can help lenders keep track of the real-time risk to their collateral and borrowers in affected areas, while at the same time notifying lenders of any temporary federal and state regulations set forth during the catastrophic event. The regulations often change frequently throughout these declared events, and could impact how a lender is required to handle repossessions, collections, consumer notifications, and insurance and loan premiums. It is therefore especially helpful having a third party proactively manage these processes on behalf of the lender, so the lender can focus its time and resources on other pressing, disaster-related needs.

Insurance tracking programs are the most effective tool for protecting a credit union’s investment in outstanding loan collateral. And one of the most effective ways to build a strong, successful insurance tracking program is to partner with an experienced vendor that can consistently perform this role on behalf of any lending institution.

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 it can work with lenders to assess how that newly-unprotected collateral is adding to their overall risk on the entire loan portfolio.

A great insurance tracking partner will go beyond these traditional services and functions to help lenders effectively manage enterprise-level risks, protect relationships with borrowers and simplify overall processes.

10 Key Benefits of a Strong Insurance Tracking Program

1. Reduces consumer aggravation and compliance concerns
2. Issues refunds to lenders and consumers much more quickly and accurately
3. Improves accuracy and timeliness of loan-related communications with borrowers
4. Vastly reduces the number of lender-placed insurance policies on properly-insured loans
5. Provides credit unions’ real-time assessments of their exposure in any given catastrophic situation
6. Offers valuable insights on the location and status of a delinquent loan’s collateral and borrower
7. Eliminates costly errors related to total loss valuations and settlements
8. Improves negotiations with insurance carriers
9. Protects institutions on claims where the collateral is repairable
10. Reduces the time taken to issue a Letter of Guarantee

Doug Falvey SVP for Allied Solutions’ Loan Servicing Product Division. He can be reached at douglas.falvey@alliedsolutions.net.