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If you're like most servicers, you've thought of outsourcing tracking and force-placement of hazard insurance to save money, reduce headcount or just to remove the distraction from your office so employees can focus on more important work.
But for one reason or another, maybe a fear that the quality of work being done in your name won't be up to par or a concern that outsourcing won't be cost effective, you've concluded that outsourcing just won't work for your organization.
The truth is, there are programs for servicers of all sizes and there are ways to protect yourself and your company when you outsource - if you're careful to examine all the outsourcing options available and develop a relationship with an outsourcing provider that best fits the needs of your organization.
There are tactics that will work whether you're a large servicer or one who's so small that a single resignation means you've lost half your hazard-insurance department.
Before you start your investigation into outsourcing, you must first measure your own performance. Essentially you are creating a benchmark for comparing costs, policies and procedures to those offered by the outsourced service provider. Without a benchmark, you will not have a good fix on what the task actually costs, and you'll never really know how much outsourcing is, or is not, saving you.
A mistake made by many servicers who investigate outsourcing is that they compare the cost of outsourcing to their payroll costs alone. They're forgetting about rent, utilities, postage, materials and supplies, management, computers, training costs and storage. Once you've got a handle on your internal costs, you can begin your search by constructing a matrix listing your requirements and the details of offers made by the outsourcing companies.
However, your matrix listing of requirements will only be as good as your ability to evaluate what you're being presented. In some cases, it's very difficult to evaluate this service before you buy it and see it in action.
You also have to know your requirements before you go shopping, so they appear in the contract you reach with the selected vendor. This is especially true if you have unusual loans, commercial loans, multicollateral loans or multiple insuring requirements.
List those items and ask the insurance tracker if they have experience working with these unique loans. Ask if their tracking software will be able to handle these unique items or if they have to make changes to their servicing software to address your tracking needs. If they say "Yes," ask what the customization will cost.
Know vendor's limits
Tracking and force-placement systems often have limitations. With this in mind, you might want to look for:
- Hidden software costs. You're going to have to provide data to the outsourcer. Will your servicing software provider charge you an arm and a leg to produce an export file for your outsourcer? Will custom programming be necessary for your system to be able to receive the data developed by the outsourcing provider?
- System mismatches. Many insurance tracking systems in use today were originally designed for auto loans, and have simply been adapted to handle mortgage loans. These adapted systems, when compared to systems specifically designed to handle mortgage loans, are not the same. Mortgage loans sometimes have multiple collateral and require the borrower to maintain multiple lines of insurance coverage.
- Information underload. Does the system offered by the outsourced service provider collect enough information? Some servicing systems maintain only the expiration date of the insurance policy. You need to know both the effective date and the expiration date. What exactly will your vendor track? Can its system collect, maintain and present additional information, such as agent name and address and insurance carrier name and address? Will its system monitor your borrower's insurance carrier's A.M. Best rating? Can the system identify coverage deficiencies on policies provided by your borrowers?
- Keeping you in the loop. Hazard-insurance tracking most often involves quite a few notices to borrowers. As we all know, notices to borrowers most often equate to telephone calls from borrowers to your customer service department. Will your customer service staff have access to images of letters sent to your borrowers? Will they have access to your borrowers' insurance data at their fingertips, which will allow them to handle your borrowers' questions on the first call? On the other hand, is the outsourced insurance tracking vendor able and willing to handle these types of customer service calls for you?
Evaluating vendors
Anytime you outsource a portion of your operations, you're really giving permission to another company to represent you. Customers who have contact with your outsourcer are going to think they're talking to your company. How will you measure their performance? If I have mail coming in and someone opens it, stamps it, gets on the servicing system, makes changes and tosses out the mail, how do I know they're doing a good job?
I don't. There's no audit trail. What is the outsourcer going to do to leave an audit trail for you? Does he take the whole process and divide it into steps that are measurable, quantifiable and auditable? Are they very careful to account for each piece of paper that comes through the door? Ask to see their quality-control manual and for the name and number of their quality-control officer. Chat with that officer about his job.
Fitting right in
If you're lending in states where you can hold escrows, the hazard-insurance outsourcer is going to have to work not only with your customers, but with your escrow department as well. You will want an outsourcer who has the ability to collect insurance bills and feed them efficiently and quickly into your servicing system so your escrow department can make timely payments. Does the outsourcer you are speaking with have experience in this area? This is a relatively complicated service and few outsourced insurance tracking vendors offer it. It's difficult to do well.
Deciding to outsource is a big step for many companies to take. Often the biggest fear for those who are considering outsourcing is, "Will I lose control of service?" In a perfect world you would be able to look into your insurance tracking provider's office and monitor what is actually going on. You shouldn't have to call him or schedule a trip to see him just to stay on top of his work as your outsourcer. From a managerial standpoint, a secure online application provides access to data such as: How many insurance documents were processed last week or yesterday. How many notification letters were mailed to your customers last week, yesterday or today. How many bills came in and were sent out to clients. How many customers are deficient in providing evidence of valid insurance coverage.
If the tracker is sitting in Cleveland doing your paperwork and you're in San Diego, you want an icon on your PC screen that allows you to see the status of any individual loan or your whole portfolio, so you know what's going on right now, real time. All information must be available in your office when you need in transaction detail.
Who's Seeing Your Data?
Another data item to consider is security. Here, you've got two issues to consider. First, does the outsourcer have a back-up site and what is your outsourcer's backup plan? Is their backup or disaster-recovery plan written? Has it been tested? It's wise to maintain a second site with a complete set of data, backed up real time.
The second security issue is who has access to your online data. If you give your employees access to this information, can they log in from their home computers or are they restricted to using it at work? How will your outsourcer keep hackers out of the system?
While on the subject of systems, it's important to ask potential vendors whether they're using their own system or someone else's. If you need something new or different, will they have to go to a third party to ask for changes or can the changes that you request be made in-house?
As you shop, you need to measure the commitment of your vendor to the industry. There have been some rather large, bundled service providers who've pulled out of insurance tracking as recently as this year. If your supplier exits the industry, you'll be out any costs you've incurred in establishing the relationship and you'll have to shop all over again. Make sure you check the balance sheets of any potential business partner. Learn how long they've been in the business and how serious their commitment is to insurance tracking.
If you go with a one-stop shopping vendor who's offering a dozen services, there may be no way for you to know how many resources they devote to the glories of insurance tracking. I'd also caution you to think about whether there really is one point of transfer when you do business with a bundler. If you find you have to create a flood file and ship it to Maine and a tax file for transmission to California, while your hazard insurance files head to North Carolina, they may all go out to the same company in name, but are they really integrated?
A trick question
Any good shopper needs a trick question. And for tracking and force placement, it's this: How much time and effort goes into training your staff? The right answer here is counterintuitive. The shorter the training, the better. Here's why: You want an insurance-tracking provider who has a system that is designed to make decisions, rather than a vendor who relies upon high-turnover data entry folks to make decisions.
That is why it is important to find a company that has focused on building the business rules for processing insurance into its software so data entry staff doesn't have to make decisions. This virtually eliminates human error from the tracking equation.
"After a one-day training session, we can have a data entry clerk inputting information knowing only how to read an insurance document. And that's the way it should be," says Wiser.
So, if your vendor starts talking about CPCUs and licensed agents, that's actually not what you want. You want a company that's figured out how to take the complexities out of the process.
Once you've filled your matrix and arrived at the contracting point, you can't just put your insurance knowledge in a drawer and shut it. The expectation that you can now have no one in-house with insurance expertise is unrealistic. Someone has to be in the escrow department watching over your insurance verification program. Essentially, someone to monitor the outsourcer. There are always going to be premium-payment issues if you have escrow loans or issues related to collateral address discrepancies between the insurance documents and those addresses maintained on your servicing system. You'll need someone in-house to deal with these issues.
In the long run, an insurance tracker that devotes all its time and resources working on better methods for tracking insurance and presenting information to its clients is the way to go. Giving your business to a company that's a jack of all trades could result in them giving you the business!
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