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Lending Works’ Insurance Against Losses
Lending Works*, the prime consumer loans P2P lending company, has clarified what its insurance against losses will cover.
Lending Works has taken out insurance to cover borrowers who can't pay, which is provided by three insurers with assets of more than £2 billion. This is in addition to keeping a well-stocked provision fund against losses and arrears.
What's covered by the insurance?
According to Nick Harding, who spoke at a recent industry conference, “can't pay” means loss of employment including redundancy, as well as critical illness and death. The loss of employment element makes the insurance particularly valuable during a recession. The insurance also covers systemic fraud and cyber crime at Lending Works.
All borrowers who don't fit into the above categories are the “won't pays”, so they're not covered by the insurance, although they are mopped up by the bad-debt provision fund. This broad definition of won't pay includes those who have acquired more debts than they can afford and have become technically insolvent.
Generally speaking, it is people who have stacked up their debts who make up most of the defaulters. However, this is not the case with high-grade borrowers and Lending Works focuses solely on the best borrowers.
How much does the insurance reduce lenders' risks?
Lending Works is just slightly less than one year old and it has had no defaults whatsoever, despite lending nearly £4 million, so it is not yet possible to estimate how much lenders' risk is reduced by the insurance.
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