New York regulators said they have ordered three major insurers offering ‘force-placed’ homeowners insurance in New York to submit proposals for new premium rates.The state’s Department of Financial Services (DFS) said Tuesday the order was sent out after regulators determined that the insurers overcharged New York homeowners “to the tune of millions of dollars.” The department held public hearings on the subject last month and heard testimonies from various parties including the insurers, homeowners and consumer advocates. (Recorded webcast of the hearing can be viewed on the department’s website.)
The order was sent to three companies: American Security Insurance Company (Assurant), QBE Insurance Corporation, and American Modern Home Insurance Company. These insurers make up more than 90 percent of the force-placed insurance market in New York, and they are also the major players in the U.S. as a whole.
The insurers now must submit their new rate proposals by July 6.
A bank or mortgage servicer places force-placed insurance on a homeowner’s property when the homeowner has failed to maintain insurance as required by the terms of the mortgage. Regulators allege that rates for force-placed insurance can be three times to as much as ten times the cost of normal homeowner’s insurance, while offering less protection to the homeowner.
‘Evidence of Higher-Than-Necessary Premiums’
The Department of Financial Services said the evidence of higher-than-necessary insurance premiums was made clear at the hearing last month.
Also, the department said it discovered that the force-placed insurance market lacks the sort of competition that would keep premiums down. In New York, two companies have 90 percent of the market. In addition, the department charged, the hearings made clear that high force-placed insurance costs are having a terrible impact on homeowners, while banks and insurers are profiting off of the payments.
Financial Services Superintendent Benjamin Lawsky said that “Our hearings suggest a lack of competition, high prices, and low loss ratios, all of which hurt homeowners. Based on what we learned at the hearings, it is now appropriate for insurers to propose new rates along with justifications for those new rates.”
The department said that as a result of the foreclosure crisis, the size of the force-placed insurance market has grown from $1.5 billion in 2004 to $5.5 billion in 2010.
New York Governor Andrew Cuomo also weighed in on this issue. He said in a statement that “The extra expense of force-placed insurance can push a family over the foreclosure cliff because they have no choice than to pay a lot more for a lot less.”
Gov. Cuomo said, “These hearings indicate the possibility that the rates are too high, and for this reason the Department of Financial Services has ordered insurance companies to submit new rates, which could result in savings for homeowners. It’s our job to see that rates are priced fairly and homeowners are protected from paying more than what is fair.”