Auto Insurance Verification: What Lenders Need to Know

Posted by DIMONT on September 26, 2019 at 10:16 AM

Each year, the disaster season increasingly emphasizes the need for comprehensive auto insurance. When it comes to vehicles, most states require liability property damage, but not comprehensive coverage or physical damage(1). These varying state laws may contribute to the fact that one in eight licensed drivers is uninsured, with at least 35 percent of those drivers being subprime auto loan borrowers. It is extremely crucial for collateral to be insured at the time of loan origination, especially for subprime lenders. Vehicles with insufficient coverage leave a lender’s entire portfolio at risk—in other words, millions of dollars could be lost when uninsured collateral is allowed to infiltrate a lender’s portfolio.

 

A good practice for lenders would be to verify that they are listed as a lien holder for the vehicle. Without careful monitoring of the status of policies—including changes like cancelled or expired coverage, or increased deductibles—lenders often won’t know if they are listed as a lienholder or that the collateral is sufficiently covered. Should the borrower change or cancel insurance it is crucial for the lienholder to be made aware, as a lack of coverage would leave the collateral, and ultimately the portfolio vulnerable.


Currently, the insurance verification method is an outdated process involving lenders calling insurance companies to verify all aspects of coverage. When it comes to subprime lending markets, these calls will usually include concern regarding a lack of coverage on the vehicle. Subprime lenders and their borrowers often endure a lengthy waiting period once an auto purchase is underway: Once a dealership receives loan information for a vehicle, they will often package the paperwork and get it to the lender within 3 to 5 days, after which the borrower can get insurance applied to the vehicle. This verification process is tedious for all parties and highlights the need for more efficient and time-saving methods—something the right third-party vendor can handle with ease.


One way to properly verify coverage is by using DIMONT’s insurance verification service. Many borrowers are aware that proof of insurance is needed for car loans, but subprime lenders will always require additional proof of coverage—something insurance verification services can easily provide. DIMONT offers insurance verification and other risk management-focused services so that lenders can focus on their core objectives.
__________________________________________________________

We are constantly improving our methods of helping customers. In addition to our growing list of services including repo claims processing, total loss claims, enhanced insurance monitoring and insurance verification, we are scheduled to host several upcoming conferences to allow lenders to connect with our experts and discuss breakthroughs in insurance verification. We also offer a free Auto Loss Mitigation Survey, created to help lenders explore current loss mitigation trends among non-prime auto financing companies. Stay tuned for more information on DIMONT’s expanding service offerings!

 

Sources:

1. The Balance: Do I Need Comprehensive Coverage?

https://www.thebalance.com/do-i-need-comprehensive-coverage-527432

 

Topics: Auto Insurance Claims