Time is money in the mortgage business and every day of processing time that an institution can save directly impacts its bottom line. That is certainly true in the case of hazard insurance claims. In fact, failure to adhere to a timeline can lead to much higher expenses and the possible loss of reimbursements or loan guarantees.
Naturally, it’s common for our customers to ask us how long it will take to process their hazard insurance claims. We resist the temptation to reply that “it depends,” though that is actually the truth. Instead, we help our customers understand which steps take up the most time in this important process and where we can more rapidly reach a favorable conclusion.
There is a fair amount of work that we must do in advance of filing the claim. We must gather vacancy and foreclosure documents and ensure that coverage was in force. We have to secure photos of the damage and begin the paperwork. But the real bottleneck relates to the insurance carriers as we wait for those companies to send inspectors out to the property and then transmit their explanation of benefits.
On average, the claims process should take no more than 45 days. In some cases, it can take longer, but under the right circumstances it can take significantly less time to navigate this process.
The Type of Insurance Matters
The primary differentiator in determining how much time it will take to process hazard insurance claims is whether the insurance in force was purchased by the homeowner or was lender-placed.
With lender-placed coverage, the claims process moves more quickly because the lender is the insurance company’s customer – the carrier will work harder and faster in order to preserve that relationship. In many cases, the bank will have Service Level Agreements in place that dictate timelines and keep the process moving quickly.
In these cases, we often see insurance companies completing their work in around 28 days, which is a significant time savings for our customers. In traditional homeowner’s insurance cases, where the private carrier has no relationship with the lender, it can take up to 65 days to complete their work.
While these companies are required to comply with the requirements of the states in which they operate, many of these regulators allow the insurance company to take up to six weeks to inspect the property. Once we file a Proof of Loss with these companies, they have up to 60 days to respond, pushing the timeline out even farther.
In contrast, when we file a claim with a lender-placed carrier, we often find that the bank or mortgagee already has specific requirements with the carrier that require them to inspect the property within 20 days and then pay the claim within 35 days.
The Financial Impact of Getting Work Done Faster
Everyone knows that shortening the cycle saves institution’s money, but it becomes much more serious when an FHA-insured property is involved. Once these properties move through foreclosure, by regulation, the servicer has 30 days to get the property in conveyance condition (ICC).
Often, this requires the servicer to clear title, complete property preservation work and repairs on a tight schedule. Even if all of this work is completed, meeting the FHA’s deadline can be very challenging if we have to wait 60 days or more for the insurance company to settle up on the hazard claim. Of course, the servicer can file an extension with HUD if we’re prepared to do so, gaining an additional 30 days.
Every day beyond FHA’s deadline costs the servicer money as it loses interest for those days. The best way to ensure that you are not carrying those costs is to complete the process on time.
What the Institution Can Do to Speed Things Up
Naturally, being an expert in this area, we know what it takes to keep the process moving along, but there are still things the servicer can do to help speed up the process.
First, the lender or servicer can require insurance carriers it uses for lender placed policies to coordinate with their hazards claims third-party vendors. Delays can be avoided if a data feed or another form of data exchange from the insurance company is made directly available to the claims vendor, allowing for automated workflows.
Secondly, lenders should promote collaboration between all of their service providers, including their lender-placed carriers. By building stronger relationships with partners that offer advanced technology and who could provide the resources to enhance the institution’s technology, timelines will naturally be compressed and costs will fall as a direct consequence.
Working together, we can reduce overall timelines and costs for everyone in the value chain.