My job involves talking with community lenders on a daily basis. Specifically, I work with credit union and bank executives on their collateral portfolio insurance. This includes consumer, mortgage, and commercial equipment portfolios. I am regularly surprised to find that many managers, executives, and others are unfamiliar with the policies they have in place or how they manage risk in their portfolios. While being a leader in a lending institution carries dozens of responsibilities across multiple departments and disciplines, keeping on top of your insurance is something you can’t let fall by the wayside. Not only are uncovered or under-covered losses unacceptable, but in-depth knowledge of your policy can help with compliance. As a new year approaches, here are some good questions to ask yourself and your staff to make sure you have the best possible grasp of how your collateral portfolios are protected.
How do we cover our lending portfolios?
The first question to ask is the most basic and the most important. What type of protection do you have on your lending portfolios? Almost all lenders fall into one of three categories:
- Internal tracking: These lenders use in-house staff to track insurance documents, notify customers of a lapse, and force-place insurance through a lender insurer if needed.
- Outsourced tracking: Some lenders pay a third party to track insurance on their loans, send notices to borrowers, and force-place policies. While this can relieve some of the administrative burdens from the lender, there is often at least some work to be done in-house.
- Blanket policies: More and more lenders are switching to blanket policies on their portfolios. This requires no tracking by anyone, covers all eligible loans, and essentially eliminates in-house insurance tasks.
Once you determine what method you use to cover your portfolios, there are other questions you need to ask to get a good picture of what you are paying for and how robust your coverage is. These questions include:
- What is our limit of liability and deductible?
- What types of loans are covered, and what types of coverage are included in the policy?
- What are my staff’s responsibilities under this policy?
- For consumer policies, do we have skip coverage? If so, is it broad or basic?
- What is our maximum loss ratio or aggregate loss limit?
- Do we lose certain coverages (such as skip) when we pass a certain loss ratio?
- For mortgage coverage, is our policy all-risk or named-peril?
- Is our limit of liability per loss, per location, or per occurrence?
- How much does the policy cost?
- Is it billed monthly or annually?
- Do we have a continuous until canceled policy or a fixed date contract?
Answering these questions is a great starting point in determining how strong your portfolio insurance policy is. Sometimes, navigating policies can be a challenge. That’s why, at Unitas, we use a consultative approach to portfolio insurance to help your institution dig into your current policy, determine if you need to make a change, and provide expert advice on what type of portfolio protection insurance is best for you and your customers.