2019 Annual Risk Management Conference Sponsor Perspective: Four Challenges to Risk-Proofing Your Insurance Compliance

The time is now for CRE lenders and servicers to automate an extremely antiquated process.

In boom times for commercial real estate lenders, as we’re experiencing now, the overriding focus is simply getting work out the door to close a steady stream of deals. But when an inevitable shift in the economy occurs, the inefficiencies, high costs, and inherent risks of manually based systems suddenly become unsustainable.

For the long-term benefit and health of the commercial real estate industry, we need to risk-proof the process of ensuring that borrowers are maintaining required insurance coverages—while making the process as accurate, fast, and cost-efficient as possible.

Key CRE industry challenges requiring immediate attention.

Whether your insurance compliance operation is internal, outsourced, or insourced, it’s likely slow, costly, and full of potential risk. In worst-case scenarios, if a borrower isn’t properly covered and an insurance event happens, a lender can be faced with a total loss of investment.

Here are four key challenges faced by commercial lenders or servicers where using automated processes and technology can help to reduce risk while eliminating common pain points.

1. Human error.

The process of insurance tracking and monitoring is still mired in the world of painstaking manual reviews. Tenured people with vast experience need to continually monitor complex documents—including policies, certificates, Acord forms and endorsements—to ensure coverages are up to date and in compliance with the lender’s requirements. There is virtually no margin for error. Since there is a great deal of subjective judgment involved, crucial risk management decisions during review can also be left to interpretation and assumption.

AI-assisted text recognition technology, already being used in law offices and other information-intensive fields, holds great promise for increasing both the speed and accuracy of the overall tracking and monitoring process.

2. Keeping up with changing regulations and requirements.

The need to stay current with ever-changing policy requirements of underwriters and investors—including major underwriters such as Fannie Mae, Freddie Mac and FHA—is an effort in itself for even the most tenured reviewers. Digital systems with centralized data stores are what’s needed to provide accurate monitoring capabilities with easy system-wide updating and access.

3. Reducing operational costs.

The intensely manual process of insurance compliance review is one of the largest operational costs for lenders and servicers. In instances where large volumes of insurance are purchased and monitored, back-office and/or outsourcing costs can be enormous. Systems with the ability to review and monitor policies, assign tasks, automate work processes and track progress can empower staff to maximize daily productivity while ensuring exceptional accuracy across the board.

4. Streamlining the logistics of alerts, actions, and remedies.

Insurance compliance review personnel are continually called on to send letters to agencies or brokers to remedy non-compliant policies. Next-generation applications have the ability to instantly generate these letters, setting the remediation process into motion. In addition, these systems generate automated emails to appropriate team members, keeping them on top of follow-up communications until all issues are resolved. This can include the rapid handling of multiple non-compliant coverages with an agency or broker.


Across the CRE industry, the majority of lenders and servicers still use cumbersome paper-based or homegrown systems that use spreadsheets and basic databases to monitor coverages and track insurance documentation to safeguard their loans. Many have also invested in multiple separate applications, which are jury-rigged together to form ad hoc systems. The overarching drawbacks with these systems, which often wind up being quite costly on an annual basis, is their lack of the advanced interconnectivity needed in today’s fast-paced CRE environments.

Clearly, the integration of superior technology is long overdue for the process of insurance tracking and monitoring. It is crucial to achieve the accuracy, speed, cost-effectiveness and risk proofing that is needed for lenders and servicers to maximize productivity and profitability in the face of changing and cyclical market conditions.

Time is of the essence to move toward this new paradigm for the betterment of the industry at large.

Frank McCracken is CEO for McCracken Financial Solutions Corp. The leading software solutions provider for the commercial real estate industry, McCracken leverages nearly three decades of experience to create superior products and services for industry leading commercial banks, insurance companies, mortgage bankers and quasi-governmental agencies. These products include the standalone Insurance Compliance Solution application, a private-cloud based solution implemented by McCracken integration experts, serving prominent commercial lending clients nationwide. Other McCracken solutions include Strategy, its flagship product for accounting, servicing and asset management supporting a vast array of loan types — along with integrated workflow tools driven by business rules logic to empower proactive portfolio monitoring.



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