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Robust Programs


A robust insurance program for bank-owned real estate will cover standard perils, but it also should include mortgage-impairment coverage.


“Mortgage impairment is probably one of the most complex property and casualty coverages owned on a routine basis.” Raymond Reed, Marsh


A robust reporting form program will include earthquake and flood insurance, business interruption coverage, theft and vandalism, and, for going concerns, liability coverage. Risk managers must be aware of and try to manage important exclusions. Property managers, for example, may be excluded from an OREO policy unless the bank specifically requests they be insured by endorsement. Managing flood coverage can also be challenging because the OREO is in excess of the National Flood Insurance Program. In the event of going concerns, the bank must be aware if it is also taking control of other assets that need to be insured, such as automobiles, and it must protect the income stream of the business.


Mortgage impairment insurance is a hybrid product that protects the lender when the borrower does not maintain the required coverage on the collateral property. It also provides errors & omissions coverage to protect the lender from errors that might occur during the mortgage origination and servicing process. Policies also provide temporary coverage for newly foreclosed properties.


Copyright © 2012 by A.M. Best Company, Inc. All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.


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