Amongst the changes Assurant agreed to, the insurer must limit premium so that its maximum gross profit plus expenses is no more than 38 percent of premiums, Lawsky said.

Robert Hunter, director of insurance for the Consumer Federation of America, said this rate is "marginally satisfactory, dependent on how captive reinsurance arrangements are included in the ratio."

Assurant will also be required to pre-file its rates for review every three years and to re-file its rates for the next year if its actual rates in any year result in a loss ratio of less than 40 percent for the immediately preceding calendar year.

It must also report annually to DFS on its actual loss ratio, earned premiums, itemized expenses, losses, and reserves.

"By agreeing to implement these critical reforms, Assurant is serving as an industry leader," Lawsky said.

He added that the reforms agreed to by Assurant will make it "a stronger and better company focused on its customers."

Lawsky cautioned, "Our work on this issue is far from done and we expect that this settlement will help lead a nationwide reform effort for this industry."

In commenting on the agreement, Gene Mergelmeyer, president and CEO of Assurant Specialty Property, said, "With matters resolved with the New York Department of Financial Services, we look forward to filing our next-generation lender-placed product as we continue to meet the needs of our clients and customers in New York with outstanding service and support."

Assurant Specialty is based in Atlanta. The two subsidiaries through which Assurant sells forced-place insurance are American Security Insurance Company (ASIC) and American Bankers Insurance Company of Florida (ABIC).

In a statement to PC360, Hunter said, "The DFS deserves credit for this strong step in the right direction."

But he said DFS must issue a regulation that ensures that all force-placed lenders follow this model "so that the prohibited practices provisions [agreed to in the settlement] become effective."  

New York, California and Florida have led a recent effort to reduce the cost of this specialty product to distressed homeowners hurt by the recent downturn in the economy.

California is pressuring insurers— including Assurant and QBE—to cut rates. QBE recently agreed to reduce its rates by 35 percent effective March 15.

Investigative hearings have also been held in New York and Florida on the issue, and the National Association of Insurance Commissioners held its own hearings as well.

The DFS statement said its probe had found that Assurant competed for business from the banks that were foreclosing on distressed properties and mortgage servicers of these properties through what is known as "reverse competition."

That is, rather than competing by offering lower prices, the insurers competed by offering what is effectively a share in the profits, the statement said.

"This profit sharing pushed up the price of force-placed insurance by creating incentives for banks and mortgage servicers to buy force-placed insurance with high premiums. That's because the higher the premiums, the more that the insurers paid to the banks," the statement said.