Residential Magazine

Hazardous Conditions

With deals on the line, recommend only the most qualified insurance agents

By Garrett Mitchell

Historically low interest rates continue to drive record-high volumes for both refinances and purchases. With approvals at the punch of a key, closings are no longer conducted in months but in weeks or even days.

The mortgage business is operating at a lightning pace. One thing that could slow or even derail a purchase deal, however, is something that for the most part has been an afterthought in the past: the insurance requirement.

Everyone has seen the ads for super-fast mortgages. In a moment’s notice, a prospective homeowner can be preapproved and ready to buy. The convergence of real-time data and technology applications have molded consumers to expect immediate results in today’s fast-paced, rapid-response environment.

While technology is speeding up the mortgage process, one of the points where a bottleneck can occur is property insurance. Without bound coverage at the time of closing, the deal — including a low mortgage rate and even the home purchase itself — could be lost.

Aided by technology, loan files are being moved quickly through the mortgage process, but delays often occur in loan processing and underwriting as companies do their best to handle the massive number of applications. Many times, insurance requirements are the last to clear as more fundamental loan qualification checkpoints are prioritized.

Having insurance be last to the party can create deal-threatening problems. This is especially true in regions of the country with higher catastrophe exposures such as hurricanes, flooding, hailstorms and wildfires.

Having insurance be last to the party can create deal-threatening problems. This is especially true in regions of the country with higher catastrophe exposures such as hurricanes, flooding, hailstorms and wildfires.

Perfect storm

Today’s prospective buyers are in a fast-paced race to become property owners. Buyers nationwide bought 5.6 million existing homes in 2020, the most sold in the U.S. in a single year since the 2006 real estate bubble, the National Association of Realtors reported.

Yet many buyers, especially first-timers, are uninformed about critical aspects of the financing deal, such as the need for insurance and specific home inspections that may be required to secure insurance. If left completely on the shoulders of the homebuyer, this inexperience can create even more friction for the deal, especially if there is sensitivity surrounding the time frame or concerns about the debt-to-income calculation needed to qualify for the mortgage.

Hurricanes along the Atlantic and Gulf coasts, hailstorms in Texas and the Midwest, wildfires in California and other parts of the West, and even nor’easters in the New England region present financial risks that many insurers are trying to avoid, either by vacating a market or raising their premiums. Premiums have risen and coverage availability has fallen for these perils as storms and catastrophic events have grown more intense and numerous. A study by LendingTree found that homeowners insurance premiums increased by 59% over the past decade, with the average annual cost of insurance rising from $909 in 2010 to $1,445 last year.

So, where does this perfect storm of challenges leave consumers when seeking insurance for their home purchase? It’s common for buyers to ask their mortgage originator for insurance recommendations. Rightfully so, as selecting the right insurance agency is more than half the battle.

Typically, if a referral is requested, mortgage originators will provide multiple contacts. But mortgage originators need to make their own judgments on whether the agent they’re considering has the tools and assets needed to quickly secure the most competitive insurance, thus avoiding losing the loan or the property.

Lightning speed

What are the qualifications to assess an independent insurance agent? A mortgage originator should look at an agent’s competitive position and access to the market. Every independent agent will tell you they shop the market to find the best rate. Unfortunately, the truth is that many agents don’t have the necessary carrier appointments — authorization to work on behalf of an insurance company — to actually deliver on this promise.

Don’t be afraid to ask the agent, “How many A-rated homeowners insurance companies do you represent to shop your clients with?” (A-rated companies are those gauged by credit agencies as most likely to be able to pay claims.) Top-performing insurance agents will have the ability to shop home insurance products with 20 or more companies in order to provide the most competitive terms available.

If the agent struggles to answer this question or indicates they only represent a handful of companies, it’s recommended to keep looking for a more equipped agent. When the borrower’s debt-to-income ratio is tight, it’s critical for your clients to receive the most competitive insurance policy possible. Many times, insurance premiums are the last attribute entered into the equation to determine if the client qualifies for the loan.

Another qualification is the agent’s access to technology. The best insurance agencies in the country invest in rating technology, which allows them to quote multiple carriers at lightning speed and process policies fast. When shopping for the right insurance agent, it’s crucial that they can turn quotes and binders in minutes, not hours or days. When you are up against a deadline, relying on an agent who is manually keying data into multiple websites and compiling results one by one may well lead to a dead deal.

It’s critical to identify hazardous conditions early in the process that may disqualify the client from insurance.

Flood danger

Just as mortgages are underwritten for qualification, there is a similar process with homeowners insurance. With increased claim activity across the country, insurance companies are being more detailed and selective than ever before. Depending on the age and location of the property, additional inspections are sometimes required to secure coverage.

Working with an agent who can provide proper underwriting advice and help navigate underwriting elements can have a significant impact on the final outcome of the policy and, in turn, the loan. A quality insurance agent can help coordinate the necessary inspections, as well as identify hazardous conditions that may impact insurance eligibility. It’s critical to identify hazardous conditions early in the process that may disqualify the client from insurance. While the process is still in the inspection period, these conditions may be addressed in a manner acceptable to the insurance company and to avoid closing delays.

If one of your files involves a property in a flood zone, there will be an additional flood-insurance requirement needed to close. Many mortgage professionals may still be under the impression that flood insurance is only available through the Federal Emergency Management Agency’s National Flood Insurance Program.

Fortunately, this is not the case anymore. With advancements in technology, private insurers have entered the market and offer fast, competitive options. Competition between carriers creates better pricing for consumers, so make sure the agent you are working with has the ability to shop at least 10 private flood programs. 

If flood zones are present in your market, you have probably encountered the infamous Catch-22 in which proof of flood insurance is needed by a certain deadline, but the elevation certificate is not yet available and the insurance agent tells you there is no way to bind or even quote coverage without this document. This is a major deal killer.

One key advantage to private flood insurance is that special technology is used to determine the elevation of the property, allowing policies to be issued without the need for an elevation certificate. A dynamic insurance agent can quote, bind and issue a flood policy for you in minutes, regardless of the flood zone.

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In today’s challenging, fast-paced and high-volume housing market, it’s important to leverage every resource possible to help your clients to the finish line. Understanding how insurance affects your deals and selecting the right insurance counterpart is a key piece of the equation.

As the property-insurance market continues to harden it will undoubtedly create more pressure in the loan qualification and issuance process. Assessing the attributes of today’s most successful insurance agents will help you align with the best in the industry and better navigate the road to closing. ●

Author

  • Garrett Mitchell

    Garrett Mitchell is director of sales and marketing at Insurance Express in West Palm Beach, Florida. Mitchell has developed multiple groundbreaking InsureTech platforms to supercharge homeowners- and flood-insurance sales across 48 states. He is both director and partner of Rocket Flood and NuBuild Insurance Group. Insurance Express delivers seamless technology solutions, competitive rates and streamlined closings to homeowners and mortgage and real estate professionals. Learn more at quoteslash.com and rocketflood.com.

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