Insurers Ordered to Cut Prices on Force-Placed Insurance
Home insurance companies have been ordered by a New York regulator to cut prices they charge homeowners for force-placed insurance policies. This order comes just one month after the state began examiningÂ how this type of coverage impacted borrowers.
Force-Placed InsuranceÂ Displaces Distressed Homeowners
Force-placed insurance has come under scrutiny in recent months as government officials suspected that insurance companies were using it to earn profits.
The coverage is typically issued to mortgage loan borrowersÂ who allow their own home insurance coverage to lapse. However, homeowners alleged that some banks and insurers imposed this high-cost coverageÂ in order to obtain aÂ mortgage loan, never providing them with an option to purchase their own insurance.
In May, Benjamin Lawsky, superintendent of the Department of Financial Services, accused certain banks and insurance companies of participating in an “intricate web of relationships” that served their own financial purposes.
Some home insurance companies were paying less than 25 cents in claims for each $1 premium collected, significantly less than the approximately 55 cents they estimated in their last rate submissions.
In the meantime, many borrowers were required to take on the force-placed insurance coverage — which costs about 10 times more than the typical home insurance policy — were so financially distressed that they lost their homes to foreclosure.
Home Insurance Companies GivenÂ 1 Month to Lower Prices
To correct the alleged force-placed insurance abuse at the hands of banks and home insurance companies, Lawsky has ordered insurers who sell this type of coverage to submit lower prices for review.
One of the companies in the investigation, Assurant, has stated its intention to reviseÂ its force-placed insurance costs to reflect mortgage market conditions. The other insurance company, QBE, has not yet issued a comment on the matter.
The two insurers, which claim 90 percent of the market, along with other companies have been given a deadline of July 6 toÂ file their proposed new premium rates for New York homeowners.