Ensuring auto loan borrowers maintain adequate automotive insurance coverage on their vehicles is an important task often overlooked. Most lenders have excellent processes in place to ensure insurance coverage at loan origination, however they often fail to maintain a sound process to ensure proper insurance coverage is maintained throughout the life of the loan.
In many cases, by the time we are called upon to assist the bank in filing a claim with the insurance carrier for damage on a repossessed vehicle, the borrower has either changed or canceled their insurance coverage, or signed a policy with an abnormally high deductible or one lacking in overall coverage.
There are a number of reasons lenders don’t utilize outbound campaigns to check and verify coverage. Concerns surrounding compliance with borrower communication, cost to build a department, and overall inability to justify staff and operating expenses for this department are a few of the reasons lenders utilize a third party for these services.
Fortunately, there are two key ways lenders can improve their overall insured percentage on their portfolio as well as maximizing the dollars received on post-repossession insurance claims:
- Efficiently Monitor and Track Auto Insurance Coverage
Some of the larger insurance carriers can make data feeds available to the lender that will alert them when insurance coverage on their collateral lapses. The data feeds also indicate what levels of coverage are in force on the vehicles in their portfolio.
In addition, there are third-party firms that also help banks track insurance coverage. These companies can process incoming mail from insurance carriers as well as reaching out to borrowers, on the bank’s behalf, via telephone or mail when coverage lapses. These companies often work with insurance carriers to help borrowers obtain coverage to maintain compliance with their auto loan requirements.
- Communicate With Borrowers to Ensure Sufficient Coverage
When coverage lapses, it’s important the lender or its vendor make contact with the borrower to update insurance coverage on their vehicle or communicate the importance of obtaining insurance as soon as possible. Lack of coverage can place the lender at risk for a greater loss severity should the vehicle be abandoned or repossessed and sold at auction.
Lenders should consider monitoring and tracking insurance coverage for their auto portfolio as part of their standard operating procedure. Proper insurance monitoring and tracking decreases the risks associated with their portfolio, provides a stronger level of confidence from the investment community, and faster return times on insurance claim proceeds.
While your insurance claims filing partner could begin making calls to companies to determine if any coverage exists, it is inefficient and negatively impacts the return rates and times on insurance claims. In the end, knowing what insurance coverage is in place with a specific carrier improves recovery times and overall recovery dollars.