RISKY BUSINESS
ARE MORTGAGE COMPANIES REQUESTING REPLACEMENT COST ESTIMATORS? The coronavirus pandemic is having a tremendous effect on many different aspects of life. While all of this has certainly influenced your personal and professional habits, it’s important to focus on how changes are managed from an operational standpoint within the agency.
The agency makes no assurances that the policy limits provided will be adequate to rebuild the structure.”
It has recently been brought to our attention that mortgage companies are making more frequent requests for replacement cost estimates. While it has always been a fairly common practice for a lender to verify a valid insurance policy is in place, the exposure now is the language used to describe the policy and limits and as well as the documentation requested.
In an effort to expedite the processing of this request, many agency procedures include sending the RCE to the lender. While this may seem like the easiest solution, it is important to be mindful of any contractual language with carriers and vendors that would prohibit the agent from sharing such documents with a third party. While it may be difficult, at times, to push back on this request it could result in other consequences for the agency.
The Danger of Guarantee Independent agents should always be careful when providing anything at “100%” or “Guaranteed”. There is too much variability and change to offer this wording in the insurance industry. So, what about mortgage company requests for “guaranteed replacement cost”? As a licensed insurance agent, you could face disciplinary actions for misrepresenting the coverage the homeowner has in place as indicated in Wisconsin statute 628.34(1)(a). It is extremely important to standardize the response to these requests from mortgage companies.
Sharing Replacement Cost Estimator (RCE) Documents
Take the time to update internal workflows and procedures to ensure your response is consistent and does not create unintended exposures for the agency. Agency exposures greatly increase when operational changes occur, and employees should be diligent about questioning new requests and procedural inconsistencies. If your agency has any questions regarding agency operations or responses, please reach out to Mallory Cornell at Mallory@iiaw.com.
Recommended language has been shared from the Florida Association of Insurance Agents (FAIA) and advises agents to use the following: “It is the practice of this agency to insure structures for their estimated replacement cost as determined by the insurance company. Building limits are estimates only and are arrived at based on information provided by the policyholder and/or industry standard software used to estimate replacement costs. The actual cost to rebuild the structure may exceed the policy limits, especially during a catastrophic event and/or where an ordinance or law impacts repair or replacement.
> Mallory Cornell,
IIAW Vice President and Director of Risk Management
wisconsin INDEPENDENT AGENT
MAY 2020
21
