As Lending Institutions explore our “LSI” (Lenders Single Interest) Blanket Insurance program, they often have questions such as, “Is it really that simple?” or “Does it matter what size our institution is?” or “What type of implementation is involved” To help you as you research LSI, we put together a list of commonly asked questions about the program.
Is it really that easy?
It really is. Our clients will ask “So that’s all we have to do? We don’t have to call or email the borrower anymore when their insurance lapses?” No, you’re not legally responsible to call or notify the member.
You are required to verify borrower insurance before making the loan. After that from an administrative standpoint, the only actions required by the Lender are reporting the number of loans made in a month and making any claims, both of which are done via our online web portal (Which is very user friendly). When loans are reported, the Lender is only reporting the number of loans made in a month; we do not need any additional information.
Customers say all the time, “Oh I can’t believe we don’t have to report anything except the number of loans on a monthly basis.” That’s one of the great advantages to our LSI program. It is designed to eliminate the busy work of loan servicing.
How do regulators view the product?
There are no regulatory issues with the LSI blanket insurance program and our clients can attest to that. When a regulator is auditing a lenders portfolio and asks how uninsured collateral interest is being protected, you would show them your LSI policy.
With force place programs you can show a force-placed certificate, and it’s a certificate for that piece of collateral, whereas with LSI you have your master policy.
How do LSI charges apply?
LSI is rated on a per new loan basis, so it is a one-time fee charged on new loans originated. In most states you have the option of passing that charge on to the borrower.
The concept of LSI is that a Lender charges a small amount of premium up front and spreads it across their whole portfolio vs. trying to collect a force place premium from a borrower who is potentially facing a financial hardship. When lenders force place insurance on someone already facing a financial hardship, that person typically is not able to pay the force-placed premium and instead turns in their keys. Now that loan is no longer performing, and if the lender is unable to collect that premium it turns into a write-off.
Does this program really fully eliminate tracking?
Yes, the Lender is not required to track insurance and the insurance provider does not track insurance. The process is completely eliminated. All that the Lender cares about is if the borrower is current on their loan.
Do we assume the risk on existing loans if lending institutions make the switch to LSI?
If you switch from a CPI program to an LSI program, we’re going to protect all the new loans moving forward, but we’re also going to pick up the risk on their existing loan portfolio. So even if there are uninsured loans in their portfolio, we will still assume the risk.
What is the implementation process like? What do you need to put in place to get this program off the ground?
The LSI implementation process is seamless, as there is no up-front work needed to get started. Once the Lender fills out an application they are given a “per new loan” PNL rate. Once coverage is bound the Lender just needs to keep track of the amount of loans made in a month which is reported on Lenders Risk LSI web platform (one month in arrears).
There is no data dump necessary or monthly reporting of borrower information and insurance information. This is contradictory to a lot CPI programs that work in conjunction with an outsourced tracker, which require the Lender to update their entire data file with all loans and borrower information. Providing this volume of information up front can be a hassle. You have to figure out which loans are delinquent, how many days they are delinquent, etc.
Basically with LSI the only thing the Lender will have to figure out is where to apply the extra manpower elsewhere within the financial institution.
Do I have the same coverages that my CPI program had in place?
Yes. We have all the same coverage and even more. Our programs are highly customizable, so we can offer additional options such as broad form skip, mechanics lien, commercial vehicle coverage, etc.
Can I pass this charge on to the borrower?
Yes. You can pass it on at the time of loan origination and list it as a separate line item. It can be passed on in all states except for the following:
Alabama
Delaware
Michigan
Missouri
Nebraska
New Jersey
Pennsylvania
Texas
Does this program work for anything outside of cars?
Yes LSI is designed to protect the Lender’s secured interest in collateral aside from Real Estate. This will protect cars, boats, RVs, Mobile Homes, Jet Skis, Trucks, Trailers, Chattel, Airplanes (not in motion), motorcycles, ATVs, etc.
Does it matter how big or small the institution is?
This product is a great fit for any sized financial institutions. The beauty of the program is that it scales very nicely with growth because it is rated on a per new loan basis. We have clients that make anywhere from 10 loans a month up to 3,000 loans per month.
What factors drive the per new loan rate?
The three biggest factors that drive the per new loan rate are repossession history, portfolio delinquency, and average monthly loan volume.
Have any additional questions? Reach out to Lenders Risk at 1.888.600.4436.