3 ways home insurance can derail mortgage closings

image: www.geograph.org.uk

Many home buyers don’t start thinking about home insurance for their new homes until their lenders ask them about it during their closing process. Inexperienced lenders can be late to check on their clients’ insurance.  Too often, things come up that can have a negative impact on loan closing and even wreck deals. We’ve handled enough panicky phone calls and emails from mortgage lenders and home buyers to know. But home buyers and lenders don’t have to worry if they keep a few things in mind.

Environmental Conditions

We at Comparity live in an area where both hurricanes and flooding threaten homes on an annual or perhaps more frequent basis. But even areas not as infamous for damaging weather can face environmental conditions that force insurance carriers to adjust their underwriting criteria, increase rates, and restrict policy issuance. Regional restrictions vary by carrier over time and change frequently. Homebuyers often expect to go to their current insurance carrier for a new policy only to find the carrier has temporarily halted issuance of new policies in the area.

Excessive Claims

At some point during every closing process both home buyer and lender should be protected by a Claim Loss Underwriting Exchange (C.L.U.E.) Report. No home buyer or mortgage lender should do a deal without a C.L.U.E Report. The C.L.U.E. Report details the insurance claims history of a property. If there have been many claims on a property the cost of insurance on that property can increase, no matter what carrier. But again, all carriers have different appetites for risk so their policies will have different costs for excessive claims properties.

Debt-to-Income

For any number of reasons, including the two aforementioned, the cost of a home insurance premium can put a buyer over a legal limit on the amount of debt they can carry relative to their income. Hazard insurance policies often vary by thousands of dollars across carriers.

Shop and Compare

Anytime someone is buying a home they should shop and compare their options for home insurance. Mortgage lenders should encourage their clients to shop for home insurance well before closing. There are too many variables in every homebuyers situation to assume that they can find the right coverage for the best prices by going to only one seller, even if that seller represents multiple insurance carriers.

 

Announcing: Industry-First Integration Between Hazard Insurance and Loan Origination Software

FOR IMMEDIATE RELEASE

Contacts
Kevin Curry Angelo Jones
757-333-0712 678-781-7209
kevin.curry@comparityins.com angelo@williammills.com

Comparity, LendingQB Partner to Provide Industry-First Integration Between Hazard Insurance and Loan Origination Software

Virginia Beach, Va., Feb. 15, 2017 – Comparity, LLC, an insurance technology company whose mission is to simplify insurance shopping, has partnered with Costa Mesa, Calif.-based LendingQB to integrate its home insurance platform directly into LendingQB’s loan origination and loan processing software.

The industry-first integration imports mortgage loan application data directly into Comparity’s home insurance application. Home insurance applications require many of the same inputs as mortgage applications, and home insurance is required in order to close on typical home loans. The integration makes processing home insurance during the mortgage closing process more simple, transparent, and streamlined for both lenders and homebuyers.

“Everything in the mortgage industry is driving toward digital. It seems obvious for hazard insurance to be integrated but business and regulatory constraints have been obstacles,” said Scott Hunter, Managing Partner and Chief Executive Officer at Comparity. “We created a technical solution that enables homebuyers to shop privately with the most carriers using their mortgage application data. This integration also helps lenders track their clients’ hazard insurance requirement, validate estimates, and download evidence of insurance,” he added.

“To be competitive in today’s market, lenders need to remove as much waste from their workflow as possible,” said Tim Nguyen, President of LendingQB. “The partnership with Comparity eliminates hours of wasted time finalizing hazard insurance applications that can be leveraged through the existing data in the LOS.”

LendingQB’s LOS is completely web-based and designed to provide lenders a flexible, innovative workflow. Its open-architecture application protocol interface (API) enables lenders to select the tools, like Comparity, that best help their efficiency. Comparity’s technology and distribution platform is designed to fit specifically with the lender’s workflow and bridges the gap between a digital mortgage and hazard insurance.

About Comparity

Comparity is an insurance technology company whose mission is to simplify insurance shopping so everyone wins. Comparity connects buyers and sellers of personal insurance through an online, side-by-side comparison of multiple policy quotes from multiple companies using a single insurance application. Comparity reaches more insurance carriers than any other company, including carriers no other company can compare. Learn more at https://www.comparityins.com

About LendingQB

LendingQB is a provider of Lean Lending solutions. The Lean Lending solution consists of a 100 percent web browser-based, end-to-end loan residential mortgage origination system, best of breed integrations with key industry partners and ‘adoptimization’ services that result in faster cycle times and lower costs per loan. For more information, please call 888.285.3912 or visit www.lendingqb.com.

InsurTech for Insurance Agents

Agency Owners: watch to find out how we can send you completed insurance applications from home buyers for free.

Licensed in 50 States

We reached another important milestone last Friday: Comparity is a licensed insurance producer in all 50 states.

Now our technology can be used by insurance shoppers to compare options and buy insurance from any agency in the country. Our technology gives both buyers and sellers the “shopping cart” and “buy button” they’ve always wanted but could never have until we came along.

Insurance agencies who join our network receive completed insurance applications to quote for free. We receive a fee only for each new policy acquired using our technology. Both independent and exclusive carrier agencies can participate.

We are actively seeking new agencies to join our network in all 50 states, and especially in California, Florida, Georgia, and Oregon.

If you are an insurance agency owner or principal and would like to download our presentation to learn more please click here.

Better Together

Today we reached a milestone for our company and at the same time we contributed something useful to the world of home buying and home insurance. Today we launched our first API integration with a mortgage technology company and it was not only our first integration, it was the first integration of its kind between the home mortgage and home insurance industries.  It will help lenders, borrowers, and insurance carriers alike by streamlining home insurance into the increasingly digital mortgage business. It’s something that lenders have wanted for a long time but was never possible until we came along.

Technically, API integration is quite simple, almost trivial. For technology companies, API integration is expected. You’re not a tech company if you don’t API. But in the mortgage and insurance industries, API integrations are rare. Mortgage and insurance companies are not only decades behind with their technology but layers of regulations, consumer protections, and market forces made any business case for integration between mortgage and home insurance seem untenable.

That’s where we came in. The combination of our technology and business model makes it not only possible to integrate home mortgage with home insurance but profitable for us to do so, and in a way that adds value for everyone in the ecosystem. Lenders get a way to help their clients with hazard insurance that is compliant with lending rules and streamlines their closings. Homebuyers get a way to privately shop and compare the market without any effort. Insurance carriers and their agents get access to desirable customers without any up-front lead fees.

Today we reached a milestone for our company and did something useful for the 5M people who buy homes each year, their lenders, and their insurers. We won’t reach them all right away but we took the first step. That feels good.

Creating robust, efficient marketplaces for insurance

Buying property and casualty insurance today is inefficient, arcane, and antiquated.

The way we buy and sell insurance is inefficient, arcane, and antiquated.

It should come as no surprise to anyone that marketplaces for insurance are a mess. Let’s set aside for a moment the quagmire of the health insurance market and focus on property and casualty (P&C) insurance, (a.k.a., “hazard insurance” to the mortgage industry). P&C insurance is easier terrain but also complex enough that it makes for a good independent model for health. P&C is also where we have our knowledge and experience at Comparity.

It’s practically impossible to shop online for home insurance without help. We know because we’ve been working for 3 years at Comparity making it easier for people shop for home insurance on their own. Shopping for home insurance should be like any other online shopping experience today. Instead, buyers are still expected to call phone numbers from billboards and cars wrapped with the giant faces of insurance agents. Insurance carriers pour billions of dollars annually into ridiculous ad campaigns, mostly for auto insurance, in what is effectively a dredge-net acquisition strategy. (Mass consumer advertising is indiscriminate, while insurance underwriting is not.) Insurance agents also spend a billion dollars each year buying oversold contact leads. Agencies tend to buy their leads from the same, limited sources. Where different agencies use different lead channels, the same individual contact information tends to flow through all of them. Conversion is abysmal. No one likes it, yet it persists.

Buyer expectation
Buyer expectation

Anyone should be able to go online, provide some relevant information, get a host of comparable options, and “click to buy” whenever ready. We might need some help with our purchasing decision because home hazard insurance is complicated. We might want to shop now and buy later with an online shopping cart. But at no time do we want to call a phone number from a roadside billboard or the side of a car, nor do we want to fill out multiple applications, nor speak to multiple insurance agents simultaneously trying to win us over, nor give our contact info up to marketers who sell it over and over again.

So why can’t we shop for home insurance like we want? The good news is we can, now. The reason we haven’t been able is because no one has been incentivized to make it happen. No one was focused on it. Much capital investment has been and is directed at new models of insurance, like “peer-to-peer”, “just-in-time”, and “per use”. Further resources and attention are trained on emerging technologies like drones, telematics, and blockchain. Whatever the direction of investment, distribution is a small piece of the insurance industry. And yet the affect of distribution on the insurance industry is profound.

How else could one explain the billions spent through 20th century distribution channels for what is essentially an algorithm of matching risk holders with risk takers?

Companies that have waded into the space of online comparison shopping for insurance quickly found themselves in a race to the bottom through commoditization of the product (auto insurance). The market is flush with companies that use the internet, public data, and software to lure shoppers through contact lead generators. The net result is purely extracted value with little contributed by some companies active in the marketplace. Google and their partners in Google Compare seemed the only group showing leadership and innovation in the space. They weren’t really shopping the market, however. It was something like a Google shopping experience to the buyer but only one or two sellers behind the scenes. Ultimately it was lead generation funneled to a couple of super-regional independent agencies with their own (limited) carrier appointments.  The initiative ended. Companies partnered with Compare went from everywhere to invisible over night. We have more thoughts about why it didn’t work but it is a long topic on its own.

We must look at insurance distribution in a totally new way to get it right for the 21st century. There are a multitude of forces at work in the marketplace. There are comparative rating and agency management system vendors that touch, process, transform, buy, sell, trade, and otherwise influence the flow of data from application to quote.

marketplaceasis
How people buy property and casualty insurance today.

It might surprise everyone but carriers and their agents to learn that there is direct competition between carriers and their agents. If a carrier can acquire a new customer through direct marketing and their web site or call center they will forgo an agent. We watched our agency partners for multiple carriers get lower commissions in 2015 and 2016, for example. People, representing a variety of self-interests, think quite reasonably that we are witnessing the decline and demise of insurance agents. Agency owners tell us they often wonder about it. Every investor we ever spoke with either asked or asserted that agents’ time has come to an end. It’s still being debated and only time will tell. No doubt, agents and agencies will consolidate and decline in number, due to technology. Writing agents off anytime soon, however is a mistake. GEICO, a company that traditionally used call centers and not agents, added local agents in 2015 and 2016. At best the situation is murky and agents are a strong constituency.

Even if carriers could eliminate all agents (and their commissions), how will carriers get customers without an evolutionary change in the marketplace? Will the insurance companies dump even more billions into the dredge model of mass media advertising and quirky mascots? Will insurance carriers spend big bucks mining big data, including social media to hyper-target customers online? What would that arms race look like? Will carriers buy customers through mergers and acquisitions that ultimately concentrate risk?

Healthy competition comes into the market, not through attention grabbing and sales capture, but through competitive bidding on a given set of risk factors.

We assert that the entire insurance industry has lost sight of how the marketplace should function. Insurance distribution is a crowded mish-mosh of middlemen where there should be proxies. Choosing insurance shouldn’t be about brand awareness and market capture. Choosing insurance should be about matching risk holders with risk takers based on ability of both parties to mitigate risk. To compound matters, the industry has not kept up with technology. At Comparity we still receive PDF scans of dot matrix printouts from national brand carriers! Back-end systems used by agents and carriers can range in backward dependency from Internet Explorer 9 to green screen terminal.

To re-imagine an optimal marketplace for insurance we have to strip it down to its bare essentials before we add things back. Essentially this about connecting buyers and sellers who, despite any amount of automation, are people who need to communicate.

shoppers-carriers
The insurance marketplace in its simplest form

Property owners are the people shopping for and buying property and casualty insurance. Practically speaking, buyers are given, perhaps unlike any other marketplace. Because of home and auto loans, property insurance is a required product for nearly everyone who has it. No matter what anyone thinks Millennials want, homes with mortgages will be insured by home hazard insurance for the foreseeable future. While mortgage insurance exists, it’s not a valued product in the marketplace for several reasons we need not get into here.

Insurance carriers are the people selling property and casualty insurance. Because the nature of insurance is distributed risk, it’s inherently in everyone’s best interest to have many, many insurance carriers in the market. Robust competition comes into the market, not through attention grabbing and sales capture, but through competitive bidding on a given set of risk factors.

A better marketplace for insurance is one in which every buyer can easily, anonymously apply for insurance with every carrier and compare results, while every carrier can determine risk for every buyer without a middleman. Many-to-many exchanges, however, are far from optimal when it comes to insurance. It’s impractical for shoppers to complete separate applications for each carrier. Carriers don’t represent quotes in the same way. Ultimately, it’s hard for shoppers to assimilate and compare quotes.

many-to-many
If this was easy we’d do it this way

At minimum proxies are needed for both insurance applications and insurance quotes. Standards are one way to address things and standards do exist for insurance data. But no buyer today ever receives two or more quotes that look the same, a fact unlikely to change in the future. De facto, standards are presently irrelevant to quote presentation and comparison. That’s fine. We can do this without standards, for now.

A proxy insurance application simply allows anyone to complete one application that can be transported to any carrier. A proxy insurance quote lets any carrier present quotes however they choose while enabling quotes to be assimilated into side-by-side, “apples-to-apples” comparisons with other quotes from other carriers.

distributethisproxycompare
If we had a magic box that made it easy, what would it do?

Given these proxies and a machine for processing them, all insurance buyers and sellers can access the entire marketplace efficiently and simultaneously while independently controlling the way in which they are presented to and accessible by one another.

We have an hypothesis at Comparity that each carrier’s underwriting defines their market. We don’t doubt that multiple carriers want to insure the same customers and must therefore compete. But competition should be based largely on the product, an insurance policy and the people who will service it. That requires buyers’ ability to compare. We also don’t discount that distribution of insurance risk is important to a robust insurance market and ever-changing risk frequently changes the competition. By extension, we think that the function of the insurance marketplace is to optimally match property owners with insurance carriers based on underwriting.

Insurance distribution is match making.

Match making is not brokering.

Even in the age of Tinder and e-Harmony, most of us don’t want, need, or use a dedicated person to help us find a companion. We don’t need that with insurance either. More specifically:

  • People who need insurance don’t need other people to sell to them or broker for them in order to find a best policy
  • People who provide insurance don’t need to pay their agents or third parties to reach customers they want insure
  • People who need insurance should be able to easily compare as many policies as they wish while maintaining complete control over the decision to choose any one policy
  • People who provide insurance should not have to pay contact lead fees for the potential to acquire a customer

Insurance agents don’t vanish in this new marketplace. Because of technology in general, fewer insurance agents can service greater numbers of policy holders. But agents still play a vital role in insurance through front line underwriting, long-term policy service, retention, and local knowledge. No matter how shoppers arrive at a policy, they almost always want to speak with a someone, and not just anyone – a licensed insurance professional.

This is all possible with open, anonymous system through which buyers privately declare their specific needs for insurance to all carriers and carriers freely and easily quote or pass on any buyer without upfront cost of acquisition. Such a system enables buyers to shop and compare insurance online in the manner to which they are accustomed to shopping for anything else. The same system, without modification, affords insurance carriers and their agents the ability to cost-effectively connect with any shopper according to the carrier’s underwriting and best available policy.

Shopping for Insurance Matters

It may seem trite, but shopping for insurance is important. I might go as far as saying that shopping for insurance is vital to our economy, for reasons I’ll try to explain here.

First, some background. Right now people truly can’t shop for insurance. Sure, anyone can go online, check out familiar brands, maybe fill out a few quick forms. In the case of auto insurance you might even get back some instant estimates. But this is all just marketing and to truly get even a single accurate quote you must complete a multi-page application with a credit check and motor vehicle report.

confusedIn the current market, some lead generator sites attempt to fool insurance shoppers into thinking they are getting multiple quotes to compare, side-by-side. Truly these sites sell shoppers’ contact information to eight different agents who race to be the first to reach you. Whatever information is entered with the lead generator has to be re-entered with each company selling the insurance in order to provide an accurate quote. (We call it a “hard transfer”.) Buyers hate this situation and so do sellers.

Buyers (and sellers) are then left with two choices: 1) go all in with the first company they feel good about and hope it works out, or 2) fill out the same application over and over with multiple carriers. Unfortunately for buyers (and sellers) both options have further consequences.

Option 1 doesn’t always work out. Sometimes carriers will decline to insure properties based on their current risk exposure. It happened to me when my carrier – a company my parents had been with for 30 years – could not insure a new property because it was too close to the shore and the company had suffered too many hurricane losses in the area. It turns out that going with the company your parents have, which is exactly what most people do, isn’t reliable. Even when things do work out there’s no way of knowing you ended up with the right coverage for the best price because you didn’t compare.

Going to an independent agency that represents multiple carriers is one way to mitigate the main consequences of Option 1. But going with independents still leaves out comparing options from captive carriers that are household names, offer bundling discounts, and own > 50% of the market.

It may be obvious why Option 2, filling out the same application over and over, is no good

Comparing Homeowners Insurance Without COMPARITY

but there’s more to it. For each application you fill out you will get back a different result, probably as an attachment to an email. Maybe you’ll make a folder on your computer to save all the attachments. When you open them they’ll all look and feel different. Different companies use different terms to mean the same things. There’s no way to easily compare options. Maybe you’ll try to make your own spreadsheet and hope you understand everything. And because you still had to contact multiple companies to get this far, they are all calling and emailing you to sell their product.

You wish you could complete one application, send it off to every insurance company, and get back valid quotes that you can easily compare through a consistent format, all while staying in control of the shopping experience and not giving your contact information to multiple sales people.

Why is this so important? Why is it “vital to the economy”? I think it should be obvious by now why the status quo is terrible and that something should be done. What’s not so obvious is how this affects a very important segment of our economy: home buying.

Every year 5M people buy homes and home insurance is a required product on every home loan. Buying a home is a time when people should shop for insurance. We evaluate every other aspect of a home when applying for a mortgage; appraisal, title, flood elevation, and the like. Why would we not evaluate the home insurance? The only reason is because shopping for home insurance is so difficult.

As mortgage processing gets faster, more automated, and more consumer-driven the need for a fair way to shop for home insurance becomes greater.

The combination of required home insurance and no reasonable way to shop is a recipe for disaster. In addition to potential underwriting issues and lack of basic evaluation, the lack of a way to shop for home insurance creates costly inefficiencies in the best cases and leads to unethical and illegal business practices in the worst cases. As mortgage processing gets faster, more automated, and more consumer-driven the need for a fair way to shop for home insurance becomes greater. How else will we balance market demand with consumer protection?

We’ve already seen what negligence and fraud in the mortgage industry can do to our country’s economy. I don’t think there’s the same potential scale for wrongdoing when it comes to mortgages and home insurance but I do see legal entities forming that undermine consumer choice and trust while attempting to maximize corporate profit. In response new government regulations are written to attempt to counter new behavior. Everything becomes more convoluted and inefficient when it could easily become simpler and more efficient. The solution is clear: provide the insurance market with a fair and reasonable way to shop when none exists today.

So that’s what we’re doing at Comparity. If you’d like to find out more, connect with me on LinkedIn and send me a message.