There is no doubt these are challenging times for lenders with the rising number of defaults and foreclosures on commercial real estate loans. Some of these leave lenders holding collateral property that is environmentally impaired. Not only do lenders lose the unpaid loan balance along with interest and fees, but are now faced with the cost of cleaning up the contaminated property along with potential third-party bodily injury and property damage claims.
Zurich’s solution: risk transfer protection
For years, lenders themselves retained environmental risk. Risk management techniques included loan underwriting guidelines, environmental policies and procedures, Phase I environmental assessments, or escrows from the borrowers. But these tools created other issues for lenders: no protection if the assessment failed to detect existing contamination, no protection for new contamination, a higher number of deals that never happened, along with higher expenses and lower profit margins.
Zurich crafted a risk transfer insurance solution that offers lenders an efficient and cost-effective approach to managing environmental risk. View Success Stories for examples.
The benefits of risk transfer insurance include:
- Faster and easier loan processing
- Better protection from existing and new environmental exposures
- Lower costs compared to traditional due diligence methods
Zurich’s product: Lender Environmental Protection
Zurich’s environmental insurance coverage addresses the specific challenges and needs of banks, investors, loan originators and others in the business of offering commercial real estate loans. Learn more about the benefits and features of Zurich’s Lender Environmental Protection.
Discover the Zurich difference.
- Experience with lenders
Since 1996, Zurich has been working with financial institutions such as commercial banks and lenders, life insurance, pension funds, mortgage originators, investment banks, savings & loans, credit unions—anyone who makes a loan backed by commercial real estate.
- Ability to cover both portfolio and individual transactions
Zurich is able to offer lender environmental insurance to qualified lenders for either a portfolio of loans or an individual transaction. See examples in Success Stories.
- Speed of response
Zurich’s proprietary Lender Environmental Automated Processing (LEAP®) system allows lenders to process coverage applications online at rapid-fire pace. It provides lenders 24/7 access to process and check the status of their loans. Response time on straightforward loans may be less than five minutes. Loans that are referred to a Zurich underwriter for review receive a response within three business days.
Creating A Portfolio Of Efficiency
A large commercial bank was looking for an efficient way to handle their potential environmental liability exposures when making loans backed by small commercial real estate. Zurich was asked to develop a lender portfolio program tailored to the bank's lending group. Once Zurich’s program was put in place, the lender discovered that more loans could now be made because loan officers no longer had the time-consuming task of reviewing environmental site assessments. Because of the success of this portfolio program, Zurich was asked by the lender to develop portfolio programs in two other lending units.
Moving At The Speed Of A Deal
A lender was interested in providing a very large loan ($60 million) to a commercial borrower. The loan had 100 fast food franchise restaurants as collateral, and there was not enough time to obtain and review environment site assessments on all of the properties within the two week window available to complete the deal. The lender was willing to accept an environmental escrow from the borrower, but the cost of the escrow to the borrower was 5 times higher than the cost of insurance. As an alternative to the escrow, the lender accepted environmental insurance for this loan. The borrower paid the cost of an environmental insurance policy for the lender in place of providing funds in an escrow account for the 10 year loan term.
Zurich reviewed the existing environmental information, obtained current environmental questionnaires and ran database reports on each of the sites. In short, Zurich was able to underwrite the deal and bind it within the two week deadline.