California Insurance Commissioner Dave Jones announced a 30.5 percent rate reduction, for “lender-placed” homeowners’ insurance coverage offered by American Security Insurance Co., an Assurant Inc.-owned company.
The reduction will result in an estimated $42.7 million savings to homeowners, with an average savings to policyholders of $577 annually.
“Lender-placed,” also called “force-placed,” homeowners’ insurance has been a subject of controversy because, under certain circumstances, homeowners are forced to purchase the policies. These policies are primarily intended to protect the lender’s interest in the property.
In March, Jones contacted the state’s largest lender-placed coverage insurers to express concerns about excessive rates. He directed insurers to submit new rate filings with the California Department of Insurance to determine if rates could be reduced. CDI examined the insurers’ annual financial statement data, and found many cases of low loss ratios, which were a flag to CDI officials that rates charged by insurers may be excessive, according to a statement from Jones.
The rate reduction is a result of that examination, and American Security is the first insurer to lower rates based on the examination.
“An annual savings of $577 on average will come as a welcome relief to American Security’s policyholders,” Jones said in a statement. “With an estimated 2012 gross written premium of $140 million, American Security is to be commended for being the first insurer to lower its rates.”
The new rates will be implemented within 90-days, and will apply to policies issued or renewed by American Security. This reduction will affect roughly 74,000 American Security policyholders.
CDI is also contemplating regulations that would require all insurers that write lender placed property insurance to file the rates as a commodity rather than as a specialty line. A workshop discussion of the proposed regulations is scheduled for Oct. 25.