pikestaff
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Post by pikestaff on Jul 20, 2015 12:34:29 GMT
One of the perceived concerns is that primary beneficiary is the lender whereas the borrower is the person paying for the insurance... I think that is mistaken. The primary beneficiary is the director, who (provided he complies with the terms of the policy) avoids paying out under the insured part of his PG. It is very much in the director's interest to notify the insurance company of problems, otherwise he won't be covered. The benefit to lenders is entirely incidental, but valuable nonetheless. Provided the director acts in his own interests, lenders get to substitute the credit risk of the insurer for that of the director. In addition, when the director notifies the insurance company of problems, he gets access to advice from the broker which may help in finding a solution before insolvency occurs. I can see that PG cover may be well worth it to the director if it takes away the risk of losing his home or personal bankruptcy. Whether the cover is good value for lenders is another question entirely. If the insurance is taking 3% per annum out of the deal this is 3% that lenders won't get. That feels expensive to me, but insurance always is. The insurer and broker will both want their profit.
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Post by stevethatcher on Jul 24, 2015 9:16:19 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. Hi sorry I've not been back for a couple of weeks. This problem has been thought about. It is of course possible for the benefit of the policy to be assigned to the lender and indeed this is happening. That is of course a matter between the lender and the insured, but a simple Deed of Assignment served upon us would ensure that in the event of a payout, the money would be paid to the lender.
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Post by stevethatcher on Jul 24, 2015 9:25:19 GMT
One of the perceived concerns is that primary beneficiary is the lender whereas the borrower is the person paying for the insurance... I think that is mistaken. The primary beneficiary is the director, who (provided he complies with the terms of the policy) avoids paying out under the insured part of his PG. It is very much in the director's interest to notify the insurance company of problems, otherwise he won't be covered. The benefit to lenders is entirely incidental, but valuable nonetheless. Provided the director acts in his own interests, lenders get to substitute the credit risk of the insurer for that of the director. In addition, when the director notifies the insurance company of problems, he gets access to advice from the broker which may help in finding a solution before insolvency occurs. I can see that PG cover may be well worth it to the director if it takes away the risk of losing his home or personal bankruptcy. Whether the cover is good value for lenders is another question entirely. If the insurance is taking 3% per annum out of the deal this is 3% that lenders won't get. That feels expensive to me, but insurance always is. The insurer and broker will both want their profit. That is quite right Pikestaff. The point of the insurance is to provide the director with insurance if the business fails. It is also there to address teh concern of not enough early intervention in businesses that are failing and could be saved. It is in no ones interest for a business to fail. If we can do anything to obtain early intervention it is good news for Director, lender and insurer. Surely this is what everyone wants. As for expensive, well it is the only product in the world of its type, so there is no comparison. I suspect it would be more expensive to lose a lifetimes wealth if a business fails for the sake of not insuring. Ultimately people will take a view on the risk and price of failure and set it against the chance to mitigate that loss. Some will take the insurance and some won't. As an investor would you prefer a business to have the insurance and protect (assuming, I accept, the Director does what he should) your investment or not. Now with regard to the Director just ignoring his obligations; why would he? If he does the insurance is worthless. He is reminded of the things to look for each month. Every quarter the sponsor does a review, this helps fill in the blanks in that canvas. It all adds to making the investment safer. I hope this helps clarify further. PS I really appreciate the questions, they help me explain better and ultimately now we are past our first year they will help guide changes and improvements to the product. Thank you
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Post by stevethatcher on Jul 24, 2015 9:37:26 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? Hi Wiseclerk, Thank you for the valuable feed back. I hope I can adequately address the concerns you have raised. 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 We will be introducing a multi year policy as I said at the Conference. We wanted to test the water in year one to see that our underwriting assumptions were valid. They were and so now we can begin to roll out alternative coverage versions. Even if we didn't however, there would a right to automatic renewal by the insured, unless he was unable to self certify that the business was not still solvent. If the business was not solvent we would be expecting to be dealing with it anyway under the previous years insurance, as a result of being notified of a problem. This is not a huge problem for us. 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. Well of course, but that is how all insurance works. You can't expect the benefit of then insurance if you don't comply with the terms. However, ask yourself why a director would deliberately do that knowing that the consequence would be he wouldn't be covered and hence would be personally liable again. Again I point out that this is part of a panoply of measures that compliments what Thin Cats do anyway to monitor a borrower. We fill in the gaps and provide a huge incentive to keep the Director honest. No loan should be going on the platform on the basis that the Insurance makes it a good loan. No insurance can do that. Either the loan stacks up without the insurance or it doesn't. The insurance provides the comfort, that should the loan go bad, a cash pot exists which can be accessed quickly to re-imburse lenders, rather than months and months or worry and potential litigation which is what you are all faced with at present. We can all find ways that something will not deliver if we really look, but as I am fond of saying, if my aunty had balls she would be my uncle. Thanks again for the valuable feedback, keep the questions coming.
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james
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Post by james on Aug 2, 2015 19:50:43 GMT
Naturally directors of businesses engaged in long firm fraud will not fulfil their notification obligations because they will be on the run with their profits. Other than the normal monitoring are there other protections specifically intended to identify long firm fraud? For example, criminal background checks on all those involved in managment or oversignt roles in a business and looking for issues within networks of businesses that may be feeding each other turnover as part of the fraud.
For those unfamiliar with it, long firm fraud involves setting up apparently legitimate companies that create turnover with related fraudulent businesses then vanish once the fraudsters have accumulated sufficient credit and assets for that to seem like a good time to do it.
This is also something for investors to be aware of in the context of P2P investment platforms, since it's inevitable that at some point crooks will get the idea of trying to exploit P2P in this way. Sampling loans to determine that they have really been made is one of the possible protections against this, though it's not complete and unless the sample is truly random specified loans could be to participants in fraud.
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james
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Post by james on Aug 2, 2015 20:17:14 GMT
As an investor would you prefer a business to have the insurance and protect (assuming, I accept, the Director does what he should) your investment or not. On balance, I think not and that I will regard PGI as an increased risk factor for lending unless I can see a clear reason for it, such as a large increase in business with a single customer, putting the business at risk of failure if the customer defaults or changes supplier. I'm not sure that PGI is the best protection for that risk either. I'm far from convinced as a potential creditor that it would be to my advantage to have the director's liabilities to creditors reduced. It might, for example, cause a director to write off a salvageable business and rely on the insurance for protection, instead of committing their own assets to save it. However, I don't currently lend at the platforms where you have customers, so far as I know, so this is currently moot for me.
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james
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Post by james on Aug 2, 2015 20:19:35 GMT
Again I point out that this is part of a panoply of measures that compliments what Thin Cats do anyway to monitor a borrower. In what way is what Thin Cats do of any relevance at all in the current context?
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SteveT
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Post by SteveT on Oct 1, 2015 15:11:50 GMT
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. Steve, I presume you wrote the PG insurance policy for L** J*** Ltd, whose loan has just been Defaulted by ReBS?
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Post by jh on Oct 1, 2015 15:47:30 GMT
Why ask a question that should Steve cannot answer ? Clearly a yes or a no would be a breach in confidentiality/DPA ?
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SteveT
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Post by SteveT on Oct 1, 2015 16:27:07 GMT
Why ask a question that should Steve cannot answer ? Clearly a yes or a no would be a breach in confidentiality/DPA ? Not sure I understand why. The loan information states that the borrower's PG is backed by PG insurance. Steve Thatcher stated in his post of 1st July that "It is the only PG insurance currently available in the world". So I was just checking whether the obvious inference is correct. In any case, I've now spotted a link to the PG insurance company website that was provided by the loan introducer (another JH; are you the same person?) which has confirmed it. It will be interesting to see whether (if it ultimately comes to this) the PG insurance is actually worth anything from the lenders' perspective.
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Steerpike
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Post by Steerpike on Oct 1, 2015 17:20:54 GMT
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. Steve, I presume you wrote the PG insurance policy for L** J*** Ltd, whose loan has just been Defaulted by ReBS? First 3 months cover=0% www.pgicover.co.uk/index.php
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SteveT
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Post by SteveT on Oct 1, 2015 17:37:13 GMT
Hmmm, 3 months from when, I wonder. Presumably the date the insurance policy began (which may or may not have been earlier than the date the loan commenced). And what date is relevant for the end-stop timing; the date the loan first became late, or was declared in default, or a formal claim was made against the PG or ...
Either way, I've every confidence in the insurance industry finding a way to avoid paying out anything.
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