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The key to better hazard claims performance.

HAZARD CLAIMS MANAGEMENT IS A REWARDING YET RISKY ENDEAVOR for mortgage servicers. Tackling this segment of the industry successfully takes an experienced and knowledgeable mortgage servicer that understands and has adopted the "secrets" to success in this business. With the proper tools, stable partnerships and in-depth knowledge of industry regulations, a servicer can truly thrive in the hazard claims arena.

In order to enjoy success in the field, there first needs to be a foundation of knowledge in areas such as the effective use of technology, timeline management and vendor management. Partnering with a carefully vetted and strong service provider is a strategic move that becomes a differentiator for a mortgage servicer. Prior to picking a partner, it is imperative for the servicer to determine if the provider has a strong track record when it comes to technology, efficient processes and significant experience in heavily regulated environments.

A devastating myth within the industry is that all technology systems are secure and all providers meet the same standard, when many of them don't perform any penetration tests--which are designed to determine the level of access a hacker might achieve with the existing technology system security.

This information should be gathered and vetted prior to partnering with a service provider in order to protect the servicer from ultimately paying the price for an insecure system.

From a pure technology standpoint, a servicer must perform its own penetration tests. Additionally, it is best practice for servicers to have policies requiring any service provider to perform regular penetration tests to secure any non-public information. These policies and procedures not only give the provider a chance to remediate any identified issues and make its system as secure as possible, but it also allows the servicer to assess its partner's ability to remediate problems and respond to a crisis scenario.

Servicers should also specify their individualized reporting and other customized communications needs. Technology should improve the provider-servicer interface with more interactive, streamlined communications and allow the servicer to monitor specific areas of need, such as recoverable depreciation claims on Federal Housing Administration (FHA) properties. In some instances, a collaborative portal may be set up, building an interface between the hazard claims provider, the servicer and its other vendors.

While it may be easy to feel that the heavy lifting is complete once the technology partnership and system are in place, it is important to continuously make modifications to keep pace with the evolving industry. Regulations change almost daily, and new technology is being developed constantly. A smart servicer stays abreast of these changes and ensures that its service provider upgrades systems and modifies processes as required.

The importance of timeline management

In addition to technology, servicers in the hazard claims industry must enhance their timeline management policies and procedures, including the recoverable depreciation (RD) process. This makes the entire claim lifespan more efficient, saving time and money for servicers.

If a servicer is handling insurance claims in-house and does not have the necessary experience or expertise, it may not fully understand recoverable depreciation or how it can affect the business, which could cause additional, even unnecessary, expenses.

Recoverable depreciation is a significant portion of the difference between replacement cost and actual cash value. For instance, once a claim is filed, as much as 30 percent to 40 percent of the settlement is not immediately available.

If repairs are made within the policy guidelines, RD may be available to offset corporate expenses used to get properties into conveyance condition. However, if repairs are not made in a timely manner, these additional funds from the insurance settlement may not be available.

In order to capitalize on the entirety of the claim being filed, it is vital to have a clear way to track this within the timeline management process.

Reporting, managing deadlines and quick turnarounds are other key factors to be included in the timeline management process. Incorporating data-specialized FHA reporting into timeline management allows service providers to reduce expenses while ensuring that investor obligations are fulfilled. The priority should always be on the largest recovery possible while maintaining insurer standards and investor timelines.

A strong vendor management system is key

Finally, a servicer must have a well-established system of vendor management in place to ensure that technology and timeline management are being run as efficiently as possible. When a servicer brings in a partner, whether it is a technology provider or an outsourced specialty vendor to handle hazard insurance claims, it is the servicer's job to keep all parts of the claims process aligned. The servicer promulgates vendor management policies and procedures, and outlines best practices for each service provider with which it works.

When using an outsourced vendor, safeguarding the vendor management process can be achieved by partnering with an established company well versed in the compliance requirements surrounding its business. Additionally, make sure the vendor has the resources, experience, knowledge and controls to pass annual client audits. Anticipating compliance problems before they arise, as well as proactively preparing for an audit, should be expected from the vendor and saves time and money for all parties involved.

To save money on hazard claims management processes, a servicer should be efficient, cost-effective and compliant. Too often, servicers overlook opportunities to capitalize on available funds within the hazard claims process, and are sometimes even fined due to mistakes in the filing process. The hazard claims arena is a challenging business for servicers, and the best way for them to thrive in this complicated business is to learn from those with proven tools and successful track records.

Collin Harbour is director of business development at Dallas-based DIMONT, provider of specialty insurance and loan administration services for the housing industry. For more information, please visit
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Title Annotation:EXECUTIVE SUITE
Comment:The key to better hazard claims performance.(EXECUTIVE SUITE)
Author:Harbour, Collin
Publication:Mortgage Banking
Date:Feb 1, 2016
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