Back Up Servicing
Business continuity is a critical component of any orgainzation. In the business of lending, ensuring that the servicing of the portfolio remains operational regardless of external conditions is a top priority.
In the business of insurance premium financing this notion is magnified due to the rapid pace of collateral dissipation. If the primary servicer of an insurance premium finance receivable is unable to service the portfolio, a new servicer must be put into place almost instantaneously.
Input 1 provides backup servicing to national and regional insurance premium finance companies as required by their lenders. Over the last 20 years, financial institutions such as JP Morgan Chase Bank, Wells Fargo Bank, GE Capital, DZ BANK AG Deutsche Zentral-Genossenschafts Bank and M&T Bank have entrusted Input 1 with resumption of services if any of the primary servicers to which they lend fail or cannot service their porfolios.
In the aggregate, Input 1 is in stand-by position to assume servicing of more than $850 million in insurance premium receivables.
Input 1 has designed a methodology to integrate data from other systems into its own systems to facilitate the readiness component of the backup servicing requirement. Data can be provided daily, weekly or monthly as required by the lender or the finance company.
Methods of Backup Servicing
Servicing Options
Methods of Backup Servicing
Input 1 has developed a highly sophisticated insurance premium receivable tracking system that it has licensed to over 125 premium finance companies throughout the United States. This system is used daily by more than 100 staff members at Input 1 in providing the TPA services described above. Using this method, the systems department of the primary servicer, in consultation with Input 1, creates a "data dump" in a standard format readable by Input 1, of all necessary portfolio data. This data includes such things as customer data (name, address, etc.), transaction data (effective date, total premium, down payment, payment schedule, first due date, amount paid-to-date, status (current, NOITC, CXL, etc), and policy data (insurer, MGA, policy type, effective date, term, premium, cancel terms, etc.) Input 1 then loads this data (periodically) to its own software system. When this is done in a timely manner, Input 1 is always prepared to service the assets using software and procedures without any procedural problems because both the technical and administrative staff at Input 1 is intimately familiar with our software.
The second way to accomplish this is the "Servicer Software Method". Using this method, the Primary Servicer provides Input 1 with all portfolio data, the complete software system currently used to manage it, all software manuals, documentation, and training necessary to operate the software and analyze the data. This method has the theoretical advantage of being easier to implement for the Primary Servicer. However, there are disadvantages for all parties. For the Primary Servicer, it creates the requirement that Input 1 be provided with full system manuals, operating procedures, training and source code, to ensure that the software could be used to wind down the portfolio in the event of a servicing transfer. This method also creates greater issues of confidentiality for the Primary Servicer, because the entire software system including source code is being released to a third party. For Input 1, this method requires that one or more employees must have extensive ongoing training on the software, and any changes to the software or procedures must be immediately learned and documented. For the lender and the rating agencies, this method produces a lower confidence level that backup servicing could be easily implemented in the event of a servicing transfer because portfolio data exists on only one software system instead of two resulting in concentrations and other critical borrowing base data not being reconfirmed regularly on a second system.
Because of the reasons described above, lenders favor the employment of the "Data Only Method". The Servicer Software Method may be acceptable if it can be confidently demonstrated that sufficient documentation and education can be provided to Input 1 so that independently-verified portfolio data and borrowing base calculations can be readily available to the lender.
Input 1 is able to discuss both options with prospective customers in an attempt to come to the best conclusion for all involved.
Servicing Options
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HOT
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WARM
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COLD
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In a “hot” backup servicing arrangement, Input 1 is provided with current data on a basis which is either daily or weekly. Input 1 will provide validation of data on a basis no less than weekly which includes a complete listing of all accounts with key accounting data for reconciliation to the Primary Servicer’s system. This will often involve the execution of a certification by Input 1 that accurate data has been received.
Input 1 will have additional hardware in the form of servers, workstations and printers on-site to handle the additional capacity. Additionally, Input 1 will have contracted with an employment agency or can demonstrate some other ability to acquire any additional human resources required to assume the servicing on short notice.
Moreover, in a “hot” backup servicing arrangement, Input 1 will traditionally provide some shadow servicing functions. These functions may take the form of generating a day’s worth of statutory notifications and shipping them to the trustee or lender for verification against the live data held by the Primary Servicer or preparation of a borrowing base certificate on some regularly scheduled basis.
Finally, on-site audits by the trustee, the lender or a third party employed by the trustee or lender will occur with varying degrees of frequency but usually twice per year. Additionally, third party consulting firms may be employed by the trustee or lender to assess the Backup Servicer’s ability to perform its obligations under the agreement through moderate to extensive due diligence efforts.
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In a “warm” backup servicing arrangement, Input 1 is provided with current data on a basis which is weekly or monthly.
Input 1 will provide validation of data on a monthly basis which includes a complete listing of all accounts with key accounting data for reconciliation to the Primary Servicer’s system. This will often involve the execution of a certification by Input 1 that accurate data has been received.
Input 1 will be prepared to acquire additional hardware in the form of servers, workstations and printers within approximately 1 week to handle the additional capacity. Additionally, Input 1 will be able to acquire incremental additional human resources sufficient to assume the servicing on short notice. The acquisition of these resources can take 2 weeks but would not compromise the immediate need to service the transferred assets.
This arrangement may involve limited shadow servicing functions and are typically performed only upon request by the trustee or lender.
On-site audits by the trustee, the Lender or a third party employed by the trustee or lender will occur no more than once per year under this type of arrangement.
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In a “cold” backup servicing arrangement, Input 1 is provided with current data on a basis which is monthly, every other month or quarterly.
Input 1 will provide validation of data upon receipt, including a summary of key accounting data for reconciliation to the Primary Servicer’s system. Input 1 will run a totals only report on its own system and transmit this report to the trustee or lender for verification.
Input 1 will not have any predefined arrangements to acquire additional hardware or human resources however such requirements must be able to be fulfilled within two weeks. Under a “cold” arrangement Input 1 is most likely able to handle the additional capacity without any additional resources or with very limited additional resources which could be easily and quickly acquired.
This arrangement does not involve any shadow servicing functions by default, however special requests can be fulfilled.
On-site audits by the trustee, the lender or a third party employed by the trustee or lender would occur no more than once per year under this arrangement.
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