QBE Insurance Corp. has agreed to pay $10 million in restitution to New York homeowners it required to buy force-placed insurance as part of a settlement with the New York State Department of Financial Services.
The settlement also requires QBE also to implement reforms the state set March 21 for Assurant Inc., in which that company agreed to a $14 million settlement.
Together, the two companies make up some 90 percent of the state's force-placed insurance market.
Under today's settlement, QBE must file with DFS a premium rate with a permissible loss ratio of 62 percent; re-file its rates with DFS for review every three years; re-file its rates should they result in an actual loss ratio of less than 40 percent for the prior calendar year; and report annually to DFS on its actual loss ratio, earned premiums, itemized expenses, losses, and reserves.
Additionally, among other reforms, QBE may not pay contingent commissions based on underwriting profitability or loss ratios; provide free or below-cost, outsourced services to banks, servicers or their affiliates; make any payments—including the payment of expenses—to servicers, lenders, or their affiliates in connection with securing business.
QBE is the nation's second-largest force-placed insurer. It acquired the force-placed insurance business of Balboa Insurance Company, a Bank of America subsidiary, in 2011.
The reforms outlined in the settlement also apply to Balboa.
Restitution refunds will be made through a claims process, with a third-party administrator selected by DFS and paid for by QBE, for homeowners who have been force-placed at any time after January 1, 2008. This applies to homeowners that: defaulted on their mortgage or were foreclosed because of force placement; were charged for force placement at a coverage amount higher than permitted by their mortgage; or who were erroneously charged for force-placed insurance.
Additionally, QBE has to provide improved disclosures and notices to homeowners and ensure that the amount of coverage force placed on any homeowner doesn't exceed the last known amount of coverage.
The settlement is part of a nationwide trend by federal and state regulators to force reductions in homeowners-insurance rates paid by consumers after their standard coverage lapses.
In February, California pressured QBE to reduce its rates by 35 percent, effective March 15. The rate reduction was expected to save policyholders an estimated $19.4 million, with an average annual saving of $626 per policyholder, according to the California Department of Insurance.
The New York DFS held hearings for three days in May 2012 on force-placed insurance practices, following an investigation it launched in October 2011.
Under New York State law, force-placed insurance is defined as insurance taken out by a bank, lender or mortgage service when a borrower—typically a homeowner that has allowed a policy to lapse for financial reasons—does not maintain the insurance required by terms of a mortgage.
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