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#31642 - 09/06/02 09:54 PM Insurance coverage on commercial real estate
rexinaudit Offline
Gold Star
Joined: Dec 2001
Posts: 292
New England
What review and analysis of property insurance does your institution require for commercial real estate lending?

Our bank requires an insurance binder as evidence of coverage but does no formal analysis to see that the terms and amounts of coverage are adequate. I am concerned that too little coverage combined with the coinsurance clause may impair the collateral.

The FDIC's examination manual places no emphasis on the issue of adequate insurance coverage on commercial real estate taken as collateral, so perhaps this is a non-issue.

Do other banks also do no analysis of the adequacy of insurance coverage?
My opinions are not legal advice, not my employer's, and may change anytime.

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#31643 - 09/11/02 07:25 PM Re: Insurance coverage on commercial real estate
Neytiri Offline
Platinum Poster
Joined: Jul 2002
Posts: 645
So you are relying on either the customer or the insurance company to make sure the amount is adequate? Hmm. We do this as part of our regular loan review process. Most of the time ours is OK but have found errors on some and inadequate coverage on one of our high $$ commercial loans which is a large gas station/convenience store/restaurant in the high land value part of town.

The higher the $$ amount the more due diligence you need, but we do this on our auto loans too. (Well, nowdays cars cost what houses used to.)

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#31644 - 09/13/02 12:05 AM Re: Insurance coverage on commercial real estate
Tina A Sweet Offline
Diamond Poster
Tina A Sweet
Joined: Aug 2001
Posts: 1,033
Marysville, Ca.
I think during a review for saftey and soundness this could become an issue. You should be determining your coverage just to cover the bank in event of a disaster.
Tina A Sweet-Williams
AVP Special Assets

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