By Tom Stover
The processing of hazard insurance claims is not often the main focus of service expertise within mortgage servicers, as it is usually outsourced to specialty insurance providers. These providers are subject to state regulations, with each state free to determine hazard insurance compliance requirements as it sees fit. Because of this, processes can, and do, vary greatly from state to state, and it is the servicer’s job to ensure that they comply with all regulations.
For those mortgage servicers still processing hazard claims internally, here are three ways to ensure you maintain compliance: hire licensed adjusters; provide ongoing training; and establish an effective method of managing consumer data.
Experienced and Licensed Insurance Adjusters
Currently, 44 states and the District of Columbia penalize servicers who file hazard insurance claims without properly licensed adjusters. Therefore, it is vital that adjusters are properly trained and licensed for the state in which they are working.
Filing hazard claims for properties with the Federal Housing Administration (FHA) has even more federal compliance requirements. It is imperative that servicers hire and train adjusters who not only have experience with hazard insurance policies and regulations, but who are properly licensed to file hazard insurance claims and have knowledge of FHA specific claims. It is generally a best practice for servicers to set up an internal insurance compliance department dedicated to monitoring the license status of adjusters, and to ensure that all staff is up to date on changing regulations.
In order to become licensed, insurance adjusters are required to undergo extensive training to ensure comprehensive knowledge of all hazard insurance regulations. Filing hazard insurance claims is a unique business function that requires experience, as well as education beyond normal mortgage servicing training. Without the proper background and updated knowledge on specific policies, both the servicer and their investors could experience extensive monetary loss.
By implementing regular internal training sessions for licensed adjusters to keep them current on industry compliance updates, servicers ensure security for all parties involved in the processing of hazard claims.
Management of Consumer Data
An important job of the servicer is to manage the relationship between the borrower and lender or investor. In addition to filing hazard insurance claims, the servicer is responsible for protecting confidential consumer data throughout that relationship. Just as with other servicing technology platforms, any applications that automate the insurance claims process with insurance carriers need to be subjected to the same data security processes as your other systems. These automations may be highly scrutinized during a lender audit, potentially causing fines or mandated repairs due to the audit findings.
Specialty Insurance Providers Provide an Alternative
Because of the growing complexities and scope of compliance, added costs and severe risks associated with filing hazard insurance claims, mortgage servicers are increasingly hiring third party, specialty insurance providers to oversee the filing of hazard claims. These partners on-board fully prepared with experienced licensed adjusters, compliance departments and offer continuous training, significantly reducing losses for investors by recovering costs associated with defaulted or foreclosed properties. Essentially, a specialty insurance provider takes the compliance burden off of the servicer. Without them, the servicer is left to manage everything alone, increasing the chances of their failure to comply with industry regulations, or recovering incorrect amounts, leading to potentially detrimental consequences.
The battle to stay compliant with ever-changing industry regulations while filing hazard insurance claims no longer has to burden mortgage servicers. By employing internal licensed adjusters and providing continuous training, servicers can be successful in the hazard claims industry. However, opting to hire a specialty insurance provider to assist in these areas, as well as effectively manage associated consumer data, helps to alleviate servicer’s stress and ensure compliance throughout the entire process.