In a statement, the department says evidence obtained at the hearings in Manhattan in mid-May showed that premiums are higher than typical homeowners insurance, and there is little competition to drive rates down. In New York, two companies corner close to 90 percent of the market, the department says.

The department adds that the cost has a “terrible impact on homeowners, while banks and insurers are profiting off of the payments.”

“Our hearings suggest a lack of competition, high prices, and low loss ratios, all of which hurt homeowners,” says Benjamin M. Lawsky, Financial Services superintendent in a statement. “Based on what we learned at the hearings, it is now appropriate for insurers to propose new rates along with justification for those new rates.”

The department said that the foreclosure crisis has caused a growth in the insurance market from $1.5 billion in 2004 to $5.5 billion in 2010.

Force-place insurance is homeowners insurance placed on a home when homeowners fail to meet the mortgage agreement to secure coverage on their own.

During the hearing, insurers did not refute the fact that force-placed insurance is more expensive than typical homeowners insurance. They say the price is higher because they cannot do adequate underwriting of the risk.

The order was sent to American Security Insurance Co., QBE Insurance Co. and American Modern Home Insurance Co. The three make up more than 90 percent of the force-placed insurance market in New York, the department said, adding that the three are major players in this line in the United States as a whole.

In a statement, American Security Insurance says, “American Security Insurance continues to cooperate and engage in dialogue with the New York Department of Financial Services. Lender-placed insurance is a critical component of the national residential mortgage system. As a leader in the industry, we are prepared to revise our lender-placed offerings to reflect mortgage market conditions and meet the needs of New York homeowners, lenders and investors.”

In an e-mail, QBE says it intends to comply with the Department of Financial Services order, adding that “the company continues to support the importance of this insurance as a critical part of the U.S. mortgage industry.”

Consumer advocates, who have been critical of the coverage practices, praised New York's actions.

“At last! After decades of bringing up the outrage of force-placed insurance, someone is finally acting!” Bob Hunter, director of insurance for the Consumer Federation of America, says in an e-mail.

“The Center for Economic Justice applauds the leadership of [Superintendent] Lawsky and the action taken by the Department of Financial Services to lower excessive force-placed insurance rates and to protect vulnerable consumers,” says Birny Birnbaum, executive director for CEJ in an e-mail statement.

This story was updated on June 14 at 9:22 a.m. EDT with comments from QBE.