“Before this came up in the last several months, I was unaware of this issue,” said Sharon P. Clark, Kentucky insurance commissioner and chair of the NAIC's Market Regulation and Consumer Affairs Committee. “We have not received any complaints and this has not been an area of discussion. Several of the sister states are in the same position. We are not nearly as informed as Florida, Texas and New York.”

Florida Insurance Commissioner and NAIC President Kevin M. McCarty said because there are only two companies that dominate the market, the focus needs to be on whether rates for the coverage are justified.

The commissioners also promised greater scrutiny of compensation paid to agents, lending institutions, and costs associated with administration of placements.

Similar to testimony he gave before a fact-finding committee in New York, Birny Birnbaum, executive director of the Center of Economic Justice, told regulators here that the rates force-placed insurers charge are not justified when examining the companies' performance and profits over the years.

Consumers, he said, are not offered the same insurance protections they receive from the admitted markets, where coverage includes liability and personal property indemnification.

Birnbaum also took issue with reinsurance agreements that often involve ceding premium to the lenders as part of the insurance program, thereby calling into question the integrity of the underwriting.

“The purpose is not for risk management, but to share the premium and to charge for more services,” said Birnbaum, adding that the current insurer-lender relationship is “an incentive for abuse.”

Robert Hartwig, president of the Insurance Information Institute, and Kevin McKechnie, executive director of the American Bankers Insurance Association, defended the rates force-placed insurers charge, saying carriers do not underwrite individual risks, but rather provide a portfolio of coverage to lenders where the insurers are taking on risks “sight unseen,” with virtually no information about them.

Hartwig said the recent rise in force-placed insurance coincides with the economic crisis and increase in foreclosures. As the economy and housing market improve, he said, the premium volume will drop because fewer consumers become delinquent on their mortgages, which he cited as the reason for triggering the coverage.

McKechnie defended the payments that the lenders—acting as servicers or agents on the risks—receive. He said the compensation is small, and necessary for the work lenders do during the process.

James Novak, senior vice president and general counsel for QBE First, disputed Birnbaum's assertion that QBE and Assurant comprise over 99 percent of the force-placed insurance market. He also said QBE gives consumers ample warning when the coverage is about to be imposed, and urges them to obtain insurance elsewhere before it happens.

Insurers also defended the higher rates they charge, saying that because the risks are primarily in catastrophe zones, higher premiums are needed to prepare for what they say is the inevitability of major losses.

John Frobose, president, lending solutions with Assurant Specialty Property, also said rates are closer to two times higher than the voluntary market, and not ten times as consumer advocates said.

The carrier representatives also noted that few carriers are in the force-placed market because they do not want the high level of exposure without detailed underwriting.

While the debate raged over the adequacy of rate, Birnbaum said the issue is really the need for better regulation of the market.

“I don't think there is malice on the part of the industry,” said Birnbaum. “A handful of servicers dominate. [The problem] I think has more to do with the structure of the market.”

Meanwhile, the Consumer Financial Protection Bureau, created under the Dodd-Frank Act, has proposed new rules regarding the sale of force-placed insurance, requiring servicers to give advance notice and pricing information before charging consumers for the coverage.

Servicers would also be required to terminate the insurance within 15 days if it receives evidence that the borrower has the necessary insurance and the insurer would refund the force-placed insurance premiums.

There will be a 60-day comment period on the rules, until Oct. 9. The agency says it will issue final rules in January.