When a property or business owner approaches a financial institution for finance or re-finance, the lender will often require a method to secure their interest in the individual property or business. Part of the finance agreement for the loan will include how the lender requires their interest to be secured in the borrower’s insurances. They use this as a way of securitising their financial interest under the loan. The request from the lender usually takes the form of a letter which sets out various obligations and requirements including confirmation that the insurances are set up in line with the facilities agreement. It is the facilities agreement which contains the detail about how the borrower’s insurances should be arranged.
It is very unlikely that a standard insurance policy will comply, therefore, in order to receive the loan money the borrower’s insurers have to make amendments to policy coverage.