Balboa tracks insurance on behalf of lenders

Auto loan contracts often require the driver to maintain insurance. That doesn't always happen. That's where Balboa Insurance Group comes in.

The Irvine, Calif., company occupies a niche in the F&I world. The company is hired by lenders -- often subprime lenders -- to keep track of whether drivers with outstanding loans keep their auto insurance current and to place insurance on vehicles if their drivers won't.

This is a practice often called forced-place insurance, since the driver is billed for the coverage. The polite term is lender-placed.

Balboa also specializes in insurance to protect auto lenders against the cost of damage to cars that are repossessed.

Although not widely known -- the Balboa booth was virtually deserted during the American Financial Services Association Vehicle Finance Conference & Exposition in Orlando in February -- Balboa monitors more than 24 million auto loans and mortgages on behalf of lenders nationwide, says Mark McElroy, president of Balboa's financial institutions division.

Balboa is a unit of Bank of America.The banking giant acquired Balboa along with its parent, mortgage lender Countrywide Financial Corp., in July 2008.

Automotive News Special Correspondent Jim Henry interviewed McElroy recently.

How does the business work?

Balboa has some very sophisticated technology, which allows us the capacity to monitor insurance on a significantly large number of loans. Today we monitor 24 million auto loans and mortgages. From the data we have access to, we're able to determine, loan by loan, which customers are maintaining adequate insurance on the collateral, as required in their loan agreement.

What do you mean by 'adequate'?

When I say adequate we're interested in not only the existence of insurance but also testing versus the rating agencies to make sure that people are maintaining insurance with what we would call a financially stable institution.

What happens when you become aware somebody's not maintaining his or her insurance?

If the lender has collateral protection insurance, we notify (the driver) that he or she is required to have it. (The driver) needs to obtain it on his own.

And if the driver doesn't, is that what you call forced-place insurance?

We call it lender-placed, not forced-place. After we send them two letters we also do some proactive call-outs -- we'll call the last known insurance carrier.At end of the day, if there's still no insurance, we'll actually place this for them.

And the customer is supposed to pay?

They then have an obligation to pay the lending institution for that coverage.

What happens if the customer doesn't pay? In effect, the value of the coverage is charged against the value of the vehicle, right?


What about repossessions?

What we're monitoring is damage that would exceed the deductible. If we pick up a vehicle with a damage report that exceeds that amount, if we have collateral protection insurance on it or if we have information for an outside carrier, we make a claim against that insurance policy. That reduces the outstanding balance that's owed by the borrower.

The borrower doesn't see that money, right? It goes toward reducing the borrower's deficit.

Right. We've had collateral protection insurance in place since August 2006, and in that time we've recovered about $34 million for our (lender) clients.

How often does that happen?

About 25 to 26 percent of repossessions have damage that would be recoverable - that is, damage in excess of the deductible.