Secured loans – Insurance and Fraud

This week I have been discussing secured lending, always considered somewhat different to world of unsecured loans (credit cards and utilities).

Typically losses associated with secured loans are lower (in proportion to the assets). After-all there are always the actual physical assets to fall back on.

As such this has always been considered less of an issue of credit risk, rather operational risk. (A key risk being the valuation of the asset is incorrect, has been misrepresented or there is just downright fraud).

However it is not as different as it first may seem; behavioural modelling, fraud modelling and process controls are all equally applicable. Indeed I have been hearing of several companies looking for unsecured experience in order to run a secured portfolio.

Undoubtably there is a lot to learn from each discipline and it is good to know the skills are being considered transferable. It will lead to stronger processes and controls.

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