An increasingly important part of the servicing industry is lender placed flood insurance valuation analysis. Accurately assessing the required amount of flood coverage to place on a property is an opportunity that the industry has not responded to in any meaningful way. This fact is apparent from increased instances of inaccurately insured homes and failed audits. Many of these errors are due to servicers trying to manage flood insurance coverage valuation analysis themselves. Flood coverage valuation is difficult to do accurately and efficiently; the root cause of this difficulty, for most servicers, is that flood coverage valuation is not part of a servicer’s core competency.
It is more efficient for servicers, and by extension their clients, to outsource flood coverage valuation to experienced vendors that specialize in this highly technical field. An outside vendor is the best entity to determine the minimum flood insurance requirements appropriate for a property. The vendor provides an accurate property valuation, based on a cost approach, that can then be used in conjunction with the unpaid principal balance and National Flood Insurance Program (NFIP) limits to determine the amount of flood coverage to place on a property. When choosing a vendor, it is important to find one with flexible turn-times, a strong human resources (HR) department and proven compliance expertise.
The NFIP has mandated relatively short turn-times for lender placed flood insurance. Servicers must be within these turn-times to ensure that they are compliant with federal government regulations. A good vendor should have a turn-time of no more than three days for returning a complete and accurate servicing valuation. For home loan origination flood valuations, an experienced vendor should be completing accurate valuations in no more than four hours. It is vital for a vendor to operate within these narrow time frames so as to ensure that servicers will be able to complete placement of coverage within the federally mandated times.
Flexible turn-times are made possible by vendors with a service-oriented business model. This means experienced personnel working diligently to accomplish more efficient processing at a lower cost to servicers. Vendors should always be determined to consistently go above and beyond timeline expectations with a service-oriented model that is enhanced by implementing technology to improve efficiency.
For instance, a flood insurance vendor who partners with a technology company specializing in business workflow can utilize automation that is capable of client specified reporting and other various communications options. Today, when customers expect reporting on demand, it is necessary for vendors to embrace technology that improves the client-vendor interface.
Knowledgeable employees, who are customer-oriented with a high attention to detail, are the backbone of successful flood valuation vendors. It is important for vendors to identify and hire employees with these skills. An effective flood insurance valuation vendor hires employees that display exceptional critical thinking skills. These are the employees who will proactively call attention to a problem, and delve deeper in order to find the best solution. Quality people, backed by a comprehensive training program, are the hallmark of a quality flood coverage valuation vendor.
Servicers should look for this type of hiring practice when choosing a vendor. Intelligent staff members, who are trained on the unique processes of determining flood insurance valuation coverage, become subject matter experts who are able to work efficiently while keeping the clients’ best interests in mind. Maintaining a high level of knowledge about the industry’s rules and regulations is not an easy feat; but, for a quality vendor, maintaining this level of knowledge is a necessity.
Finally, servicers must be aware of their vendor’s compliance expertise, especially when deciding which vendor with whom to partner. A vendor should provide their clients compliance guidance from the beginning. It is a vendor’s purpose to know and address new regulations as they are released by regulatory bodies, such as the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB). A quality vendor is able to anticipate compliance problems before they arise, making the process as easy as possible for the servicer. In addition, proactively preparing for an audit as opposed to waiting to be audited saves time and money for all parties involved. A vendor should be able to provide at least a 99 percent pass rate on all files during an audit, as anything less than 99 percent exposes the customer to significant risk.
The greatest downfall that servicers have when it comes to determining appropriate flood coverage is trying to manage everything on their own. The servicer is not the most knowledgeable party to deal with flood insurance; and, if a servicer decides to pursue flood coverage valuation on their own, their core servicing duties will most likely suffer. Servicers should always outsource flood insurance services to vendors with flexible turn-times, knowledgeable employees and proven compliance expertise. Being thoughtful when choosing a vendor not only enhances efficiency, but also minimizes risk for everyone involved.
Perry Canet is the Flood Team operations manager at Dallas-based DIMONT, provider of specialty insurance and loan administration services for the housing and auto industries. Contact us today about Flood Insurance Valuations.
As seen in Servicing Management, February 2016 Issue