Nearly every lender has been written up during an examination of their collateral protection. This leads lenders to hire a third-party vendor to track and force place their insurance in order to reduce their workload, as well as their compliance risks. While using a third-party vendor can be considered a transfer of risk, lenders often are frustrated with the amount of work that their staff still has.
When speaking with lenders regarding Blanket Insurance, nearly every one of them asks me, “How do regulators view blanket insurance policies?” This is an understandable question, as many of those lenders are frustrated from being written up during examinations for improper tracking and notification procedures. We often hear that a blanket policy is “too good to be true,” in that it relieves the lender from all work involved in tracking and force placing, as well as reducing the amount of borrower frustration. The tracking and force placing of insurance has many failure points if the system isn’t perfect. Human error, mail delay, employee business, and other factors lead to lending institutions dropping the ball on their collateral insurance tracking. A blanket policy doesn’t rely on any of the above; it’s in place 24/7 and gives the lender peace of mind in compliance and risk. Blanket Insurance is available on consumer, mortgage, and commercial portfolios.
Over the last few years, Collateral Protection Insurance has come under great scrutiny. Lenders have been facing class-action lawsuits due to policies that were duplicative, unnecessary, and overpriced. Instead of covering just the collateral, Lender Placed Insurance and Collateral Protection Insurance are examples of adverse selection, while blanket policies follow a true insurance model. Adverse selection refers to a situation in which the buyers and sellers of an insurance product do not have the same information available. A common example is with health insurance when a person waits until he knows he is sick and in need of health care before applying for a health insurance policy. A true insurance model refers to paying a little bit for every loan, and the collective amount paid into insurance covers the “bad apples.”
Why are class action lawsuits happening in the collateral protection world? We hear from lenders that when things get busy, tracking insurance correctly is the first thing to get ignored. Not only does a blanket insurance policy relieve the lender of the above, but it also gives additional time for staff to reallocate into growing loan portfolios, increasing customer experience, and improving compliance in other areas. If you’re looking to increase operational efficiencies, eliminate compliance risks, and utilize more borrower-friendly solutions, Blanket 360 Insurance could be a great solution. Find out how Blanket Insurance Premiums are calculated here.