Update: The New York Department of Financial Services Orders Force-Placed Insurers to Submit New Rates
We have an update to our May blog post regarding The New York State Department of Financial Services (“DFS”) probe into the “force-placed insurance” industry. After holding several days of public hearings the DFS determined that numerous insurers have been overcharging New York homeowners by millions of dollars for “forced-placed insurance.” As a result of the investigation and hearings, last month Governor Andrew M. Cuomo announced that the DFS had ordered insurers offering force-placed insurance in New York to submit proposals for new premium rates. The order was sent to American Security Insurance Company (Assurant), QBE Insurance Corporation, and American Modern Home Insurance Company, which together make up more than 90 percent of the force-placed insurance market in New York.
In a June press release, Governor Cuomo stated, “These hearings indicate the possibility that the rates are too high, and for this reason DFS has ordered insurance companies to submit new rates, which could result in savings for homeowners. It’s our job to see that rates are priced fairly and homeowners are protected from paying more than what is fair.” DFS Superintendent Benjamin M. Lawsky also commented in the press release and said, “Our hearings suggest a lack of competition, high prices, and low loss ratios, all of which hurt homeowners. Based on what we learned at the hearings, it is now appropriate for insurers to propose new rates along with justifications for those new rates.”
According to a July 3, 2012 Circular Letter issued by DFS Superintendent Benjamin M. Lawsky, “The Department’s investigation has raised questions and concerns regarding the rates force-placed insurers currently have on file with the Department, including whether the information provided in support of such rate filings was accurate. The loss ratios (i.e., the percentage of premiums paid on claims) insurers have actually experienced for force-placed insurance have regularly been far below the expected loss ratios insurers filed with the Department. The Department’s investigation suggests that insurers’ rates for force-placed insurance may be excessive and destructive of competition.” All insurers authorized to write force-placed insurance in New York are required to propose and justify their amended rates to the DFS by July 24, 2012.
In related news, several weeks after the May hearings, Democratic New York Assemblywoman Barbara Clark introduced NY Assembly Bill 10490 that would among other things, (i) bar mortgage servicers from receiving “kickbacks” for providing force-placed insurance business; (ii) prohibit mortgage servicers from taking out force-placed insurance that costs more than the last known coverage amount or more than the outstanding loan balance; and (iii) ensure that homeowners are put on adequate notice before mortgage servicers “force place” insurance. A copy of NY Assembly Bill 10490 can be found here.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm. If your bank/lender has engaged in unfair business practices relating to force-placed insurance, please tell us your story.