Uncovering the True Costs of Manual Insurance Verification for Lenders
July 26, 2023
Head of Marketing
Ray is the Head of Marketing at Canopy Connect and has helped dozens of startups and growth companies over his 20 year career to develop strategies and implement tactics that yield high impact results.
Manual insurance verifications are costly, take up a lot of time, and can be a challenge for everyone involved. The process of gathering and examining the info can significantly slow down the loan processing team, as well as the insurance agency and carrier.
Although this is the case, it is essential for lenders to confirm insurance coverage. Therefore, it is necessary to balance the expenses with the advantages and look for ways to improve the process. To begin, let’s explore the established process of \ verifying insurance for a mortgage.
Why Is Insurance Verification Important in Lending?
Lenders require homeowners insurance to safeguard the lender's investment. When mortgage companies lend money to homeowners for purchasing or refinancing a home, they essentially invest in the property. Homeowners insurance provides crucial financial protection to the lender in case the property is damaged or destroyed by covered perils. This makes certain that the lender's investment is safeguarded, even in the event of major damage to the property.
By mandating homeowners insurance, mortgage companies mitigate the risk of financial liabilities that could affect the homeowner's ability to repay the mortgage, safeguarding the interests of both parties involved in the mortgage agreement.
The Cost of Manual Insurance Verification
Obtaining the necessary evidence of insurance is a crucial part of the closing and servicing of a loan that involves several people.
The most obvious costs that come with manual insurance verifications come in the form time or payroll hours to request, review, and manage the process of the additional paperwork by your team.
Costs from a Loan Officer
The loan officer, who is typically the primary interface with the borrower, needs to ask the borrower, insurance agency, or insurance carrier, for their insurance information. An email and a phone call to explain what they need might take them 10 minutes.
At a $240,000 average salary, that’s about $2.00 per minute, or $20.
Costs from a Loan Processor
Then, the loan processor will need to follow-up, collect the declaration pages, and enter it into the system, which might take 20 minutes.
At $120,000 average salary, that’s about $1.00 per minute, or $20.
Costs from Underwriting
When the mortgage underwriter doesn’t have the documentation she needs at the right time, she might spend 10 minutes to contact the loan processor to request the insurance documents and then revisit the file and update it when it’s available, another 10 minutes.
At $120,000 average salary, that’s about $1.00 per minute, or $20.
Some mortgage companies also have a quality assurance assistant that spends a few minutes on insurance verification, which might add another $5.
The Real Cost of Manual Insurance Verifications
If you add all this up, we’re looking at $65 per loan when things go right, and we know things don’t always go right. Then multiply this by your loan volume and you’re looking at significant costs.
Additional Costs from the Insurance Agency and Carrier
The people on the insurance side also feel the added burden.
Insurance agencies and carriers spend a lot of time fielding and fulfilling requests for insurance verifications. So much so that many carriers have dedicated department personnel for this.
While this doesn’t necessarily impact the costs of fulfilling the mortgage, it does add costs to the value chain and creates friction in this process.
Digital Solutions for Insurance Verification
Hidden costs from delays in the approval process, and upfront costs from the extra effort in manual insurance verifications can add up. As in most other areas of business, inefficient processes can hinder growth in the long term and make a dent in your bottom line. So, when it comes to improving your insurance verification process, the challenge is to find a way to reduce its strain on time and effort without sacrificing the quality or integrity of the verification.
Digital to Analog to Digital
Modern lenders are looking to automate more and more parts of the process which requires a level of digitization.
Capturing and extracting data from documents via optical character recognition (OCR) to compile it in an easily searchable format is nothing new. This OCR digitization is significantly more efficient and reduces the amount of time and resources necessary to verify insurance, though a major drawback is its accuracy which can be wildly inconsistent.
“It doesn’t make sense why the insurance carrier has the insurance information digitally, then generates and sends an analog ACORD form as a PDF, only to have the lender or servicer try to convert it back to a digitial format.” Jason B., Loan Servicer
Digital solutions make it easier to both submit and receive documents, lessening the workload for both the client and the company. This simplifies communication and information sharing on both sides.
A review of the current state of insurance verification indicates that the future will be digital. Technological solutions increase efficiency and reduce resource waste.
The Digital Solution to Insurance Verifications
The insurance industry has been slower than most at modernizing its technological infrastructure and processes. And this has unfortunately bled into the mortgage industry as well.
This lag in adopting technical solutions to traditional and inefficient manual processes is increasing the costs of conducting verifications. Plus, it increases the workload for the client, insurance agency, and lender. The solution to these issues can be found in embracing technology designed to optimize information sharing, securely.
Canopy Connect is the leading provider of these solutions. It allows clients to share insurance documents directly from their insurance carrier in seconds, smoothing out the process of acquiring insurance information.
The information is pulled directly from the insured’s carrier portal, the data is structured, and shared to your system of choice via API, along with PDFs of declaration pages should further verification be required.
Thousands of insurance agencies already use Canopy Connect to reduce friction in their sales process, and this same method works great for lenders, cutting days off the loan close time with built-in insurance verification steps. It’s simple to implement, and you can create branded experiences that provide borrowers with a simplified digital experience.