FLOOD/HAZARD INSURANCE
Risky Business
It's a balancing act as servicers struggle to reduce costs and protect assets.
Insurance Pressures On The Rise
By Jerry DeMuth
Technology is playing a stronger role in determining and meeting the need for flood and hazard insurance.
Technological advances by companies that provide flood map information and insurance services to originators and servicers, come as originators and especially servicers have more insurance-related responsibilities while facing competitive pressures to
increase efficiencies, lower costs and protect their loans' collateral.
"The level of automation is increasing," says Mark Leidlein, a vice president at Troy, Mich.-based Proctor Financial Insurance Co., "and lenders should shop around
to make sure they're getting the proper level of automation for their volume and for their automation."
Many states, says Leidlein, are adopting legislation concerning lender-placed insurance. This comes at a time when originators, servicers and their providers are finding, through technology, more accurate, speedy and efficient ways of complying with a National Flood
Insurance Reform Act of 1994 requirement (and with additional requirements imposed by Fannie Mae and Freddie Mac).
The '94 Reform Act states that homes in special flood hazard areas carry flood insurance.
The new state legislation also regulates the disclosure of insurance and the language and timing of insurance notices. Although an additional burden, it is one that technology will be able to lighten.
Weak on hazards
But science and technology, while becoming more helpful to lenders and servicers, have yet to become as important a factor in determining the extent of flood hazards. This was demonstrated by the past hurricane season when flooding impacted many homes not located in special flood hazard areas. Because those homes are not in the A and V zones, 100-year flood plain areas which have a 26% chance of flooding over the course of a 30-year mortgage, the National Flood Insurance Reform Act does not require that they carry flood insurance.
Predicting where floods are going to occur," says Dan White, president of Norwalk, Ohio-based Geotrac, "is not an exact science.""Flooding occurs quite often in non-flood zones," says Kyle Shepperd, vice president and national sales director, Fidelity National Flood Inc., Austin, referring to the B, C and X zones - the 500-year flood plains where, according to federal flood maps, the chance of flooding over the course of a 30-year loan is 6%.
"Lenders," insists Leidlein, "need to start thinking about a lot of homes in C zones where the homeowner does not have to buy flood insurance. When you look at the massive flooding that went on in North Carolina, you find that a lot of those properties are in C zones."
"An educated lender could know that a property has flooded before although it's not in a [A or V] flood zone," says Amy Cunningham, an efficiency manager at Fidelity National Flood Inc. in Austin, Texas. "But whether to require flood insurance is completely up to the lender. It's
the lender's choice."
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