At our bank we are considering making changes to our policy regarding insurance on collateral on vehicle loans. Currently our standard is to let our officer waive coverage up to $5,000. Raising it to 10,000 do we expose ourselves to a significant amount of risk. What are some other policies out there? What kind of risks might we face?

You need to look at the size of the portfolio of vehicle loans and assess some scenarios to determine what could happen and how much of a hit you could withstand. Think of New Orleans and all of the ruined vehicles.

If it is a small portfolio and there is little chance of many losses at one time, then you might be okay. You want to make sure your practice is consistent with safety and soundness.

You might want to explore the cost of blanket collateral insurance for these types of loans. There is insurance out there that will cover you. All you have to do is require insurance through your contract and make sure that you get proof of initial coverage and then if you take a loss because someone let thier insurance lapse - the blanket coverage kicks in. Then - you can do away with all future coverage tracking. You just shred the insurance notices as they come in.