The New York Department of Financial Services proposed new rules today that will prohibit forced-placed insurers from placing such coverage on mortgaged property serviced by an affiliated bank or servicer. Force-placed carriers would also be prohibited from paying commissions on, or reinsuring, force-placed insurance with an affiliated mortgage service.
The rules are meant to address a practice wherein banks and servicing companies entered into profit-sharing agreements with force-placed insurers, thereby incentivizing those companies to seek insurance with higher premiums. This, in turn, drove up homeowners costs for consumers. It also spurred a probe in 2011 by the DFS against Assurant and QBE, the two largest carriers of forced-placed insurance.
Superintendent Lawsky described the profit sharing practice as a "kickback culture" that inflated premiums unnecessarily and caused serious harm to struggling homeowners.
The DFS probes settled earlier this year. Assurant agreed to refund $14 million to New York homeowners required to buy forced-placed homeowners insurance, as well as cut its rates and institute other reforms. QBE also settled under similar terms.
Other provisions of the proposed regulations will bar payment of contingent commissions based on underwriting profitability or loss ratios; bars payment of expenses to services that secure FPI coverage from them; provide "adequate" disclosure of homeowner responsibility to obtain insurance on a home insured by a mortgage; caps the amount of coverage required; and requires refund payments in cases where there is overlapping coverage.
Consistent with the settlements with Assurant and QBE, FPI carriers will be required to regularly inform the Department of loss ratios actually experienced and re-file rates when actual loss ratios are below 40 percent.
Gov. Andrew Cuomo applauded the proposed rules. "Insurers should be on notice that New York State is going to continue rooting out abuse in the industry and protecting taxpayers," Cuomo said.
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