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Post by betterthanworking on Jun 10, 2015 15:45:43 GMT
Several loans have recently been posted with insurance for the personal guarantee. This is new to me, and I wonder if anyone has experience or knowledge of these products, and their reliability. They do not seem to improve the loans' ratings, so are obviously not considered bullet-proof by ReBS.
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Post by edena on Jun 10, 2015 18:36:09 GMT
I've been discussing this recently with our lawyers and their position is that its more about perception than actually worth anything. That doesn't mean it won't pay out, but they wouldn't recommend accepting it.
Interestingly I have been talking to Rebuilding Society about listing another request for us, they have requested it. But it seems like good money down the toilet, until someone actually claims and gets paid, no-one is really going to know how good it really is.
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baldpate
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Post by baldpate on Jun 10, 2015 22:04:24 GMT
I've been discussing this recently with our lawyers and their position is that its more about perception than actually worth anything. Any chance you could expand on that statement a bit, please? Why did your lawyers not think they are worth anything?
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Post by edena on Jun 11, 2015 1:56:12 GMT
> Any chance you could expand on that statement a bit, please? Why did your lawyers not think they are worth anything?
Probably because their main line of business is representing insurance companies against people making claims, and there are sufficient loopholes to make it very difficult to actually successfully win the claim.
I think time will tell, we need to wait for someone using one to go into default and then see whether the creditors get paid from it.
Its not clear whether its going to be any better than PPI and we all know where that ended up.
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markdirac
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Post by markdirac on Jun 13, 2015 13:37:44 GMT
The broker gave us the website address of the insurer, and I took a look. - The insurance is far from 100%, starting at 50% I recall and increasing over several years to 90%, I recall. (I'm being lazy, I ought to go back to the website and give you reliable numbers.)
- The Ts&Cs are not available, and so we cannot know under what circumstances the insurer may or may not pay out.
- Sounds to me too much like a too-good-to-be-true magic bullet to making lending, er, bullet-proof.
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baldpate
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Post by baldpate on Jun 14, 2015 10:09:16 GMT
Like Marc Dirac, I tend towards scepticism. But then I tend to regard PGs generally as offering little real security (as do many lenders, I imagine), so any recovery from them is an unexpected bonus; if PG insurance raises the odds even slightly it is all to the good.
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Jun 14, 2015 11:59:04 GMT
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markdirac
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Post by markdirac on Jun 14, 2015 19:49:41 GMT
It was the same insurance company being used at ReBS.
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Post by stevethatcher on Jul 1, 2015 12:10:15 GMT
I've been discussing this recently with our lawyers and their position is that its more about perception than actually worth anything. Any chance you could expand on that statement a bit, please? Why did your lawyers not think they are worth anything? Good afternoon, my name is Steve Thatcher and I created Personal Guarantee Insurance. It is the only PG insurance currently available in the world. I am interested why a set of legal advisors would deem the insurance worthless, without perhaps fully understanding it. Or at least talking to me about how and why it works. My background is important here. I am an insolvency solicitor. My fellow director is ex KPMG insolvency. We wrote PGI 8 years ago but for various reasons it was only launched just over a year ago. We wrote it because we were winding up businesses not saving them. The reason for that was because directors either didn't realise they were in trouble or ignored the signs. So PG insurance addresses that, meaning that director is required to advise us of events within a business which could destabilise it. They are reminded of those events each month. if a problem occurs we can go in and try to iron out the issue, before it becomes of a size which causes the business to collapse.If the business can't be saved the insurance pays out. In the context of peer to peer lending, we recognise that in the main the funding comes from individuals. they need as much protection and certainty as possible that their money is safe. PGI will do this as if the company funded is in trouble we cam turn it around so the lend continues. If the business fails, then the assets are realised to settle the lending, as secured by the debenture, but if that is not enough the PG is called in. Without the insurance, then the platform is looking at chasing the director. We understand that that is slow, costly and not always successful and creates reams of threads on P2P forums. With the insurance, we simply ascertain what is due and pay out. You want to know the insurance company get outs. I can understand that. Well it can elect not to pay out if the director doesn't advise us of things going wrong in the business. However the Director is emailed each month with matters to look out for and also we monitor the company remotely. Also the investment is monitored by the site each quarter. We want to pay out claims. That is how we prove veracity. I am very happy to address any questions that any of you may have about the product. I would especially like to know why one set of lawyers thought it was so flakey. Perhaps they will call me for a chat. Anyway, I hope I haven't breached any forum rules straight of with my first post, but there were questions here that people wanted answers to and so hopefully I have started to address those.
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SteveT
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Post by SteveT on Jul 1, 2015 13:02:34 GMT
Hi Steve, I appreciate you posting here and it's very interesting indeed. A question, if I may:
My understanding is that PGI won't pay out in full the value of the Director's PG in the first year (or years?) and that the level cover only grows progressively over time. Can you confirm what your real criteria are, and what your thinking is behind this approach? I'd have thought you'd have as much information about the company at the point you write the insurance as you're ever likely to, so why not cover the PG in full from the outset?
Is there an option for Directors to pay a higher PGI premium in order to buy full cover from the start (in which case, this is something I'd be pushing for). The loan book statistics on FC show that loans are more likely to hit problems between months 6-12 than they are either before that or after the first year so, if PGI covers only a small portion of the Directors' PG during this "highest risk" window, I'm inclined to consider it of very limited value.
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Post by stevethatcher on Jul 1, 2015 14:35:07 GMT
Hi Steve, I appreciate you posting here and it's very interesting indeed. A question, if I may: My understanding is that PGI won't pay out in full the value of the Director's PG in the first year (or years?) and that the level cover only grows progressively over time. Can you confirm what your real criteria are, and what your thinking is behind this approach? I'd have thought you'd have as much information about the company at the point you write the insurance as you're ever likely to, so why not cover the PG in full from the outset? Is there an option for Directors to pay a higher PGI premium in order to buy full cover from the start (in which case, this is something I'd be pushing for). The loan book statistics on FC show that loans are more likely to hit problems between months 6-12 than they are either before that or after the first year so, if PGI covers only a small portion of the Directors' PG during this "highest risk" window, I'm inclined to consider it of very limited value. These are good questions. The answer really lies in the fact that it took me 8 years to convince insurers that they weren't going to get cleaned out. Hence when designing the product we had to strike a balance between providing something of value to the insured, still keeping the director's feet to the fire (the whole reason for taking the PG by the lender) and keeping the insurer happy with the loss ratios and exposure. Insurer underwriters wake up every morning trying to invent reasons to say NO and it's these boys you need to get past before any cover gets approved then written So in the first year we had to start some where and that was where it was. Now saying that, most businesses have two directors, and the PG's are generally joint and several, and so if both directors take the cover, there PG's are covered in year 1, 50% each, and hence the directors between them are now 100% covered on their PG's in the event of business failure. Also consider that before we get to our PG, the company assets put up to secure the loan, via charge or debenture are taken to partially, satisfy the debt. So It is the balance that is is left that we are satisfying. In an invoice discounting facility, even in year 1, a director who has 50% of his PG covered on a PG which covers his book, will in effect be 100% indemnified, because the invoices will be collected before he is asked to pay and unless there is a complete failure of his security (the invoices) our insurance even in year 1, should cover his full liability. Now as we enter year two, we have given the Insurer confidence that they aren't being cleaned out and we can offer alternatives, these are likely to be 90% coverage year 1, for an enhanced premium and also multi year deals which mirror term loans, again at probably 90% coverage year1. So you can see we tested the water and are now able to progress the offering. What we didn't want is to launch, promise the earth, fail to deliver and then the insurance which had never been around before, might never be again. I note your comment about, considering the PG insurance of limited value in certain situations. That is one point of view. The other is that surely it is better to have some coverage which you can rely on, as opposed to relying on collecting from the director. As far as I can tell it is the defaults on these type of loans which causes lenders, proposers and platforms more problems than any other issue. If we can provide cover for a secured loan where a PG is taken, I see the ability to dual price the offering. For instance the rate of interest on a deal might be 13% without insurance and 10% with it. I would be interested in further feed back and other questions. The more the merrier. Assuming that forum rules allow me to say that.
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markdirac
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Post by markdirac on Jul 6, 2015 18:23:08 GMT
Thanks Steve, and welcome.
Could you post the insurance policy please? Or make it available on your website?
(I would be surprised if this violated posting policy - this thread exudes healthily constructive & collaborative openness.)
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Post by stevethatcher on Jul 8, 2015 14:31:00 GMT
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Post by easteregg on Jul 19, 2015 9:38:58 GMT
One of the perceived concerns is that primary beneficiary is the lender whereas the borrower is the person paying for the insurance. The responsibility is on the borrower notifying the insurance company of difficulties so if this fails to happen the lender is still exposed. Most P2P loans that go bad usually end on the borrower paying off a few tens of pence in the pound. Having the insurance may not make much of a material difference to the borrower, but a huge difference to the lender.
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Post by wiseclerk on Jul 19, 2015 16:31:43 GMT
I watched the presentation of this from the ThinCats Lender conference video.
Generally I like the approach.
There are two shortcomings/pitfalls in my view
1) The insurance is prolonged annually. So if the borrower takes out a multi-year loan, but does not prolong insurance after year 1, lenders are stuck in that loan and the risk after year 1 is the same as in any other loan
2) If the borrower will not fulfill his notification duties, the insurance does not pay. Again, in this case the lender will not be better off in terms of risk protection than with any other loan.
Maybe these can be addressed to make the level of protection for lenders better.
But anyway, even if protection fails in certain cases, there will be cases were the insurance covers (part) of the defaulted amounts for the lenders. It would be great is statistics (per platform) on how PGI covered loans performed compared to all loans and in how many cases the insurance paid, become available. Any chance for that?
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