Governor Andrew M. Cuomo today announced that the Department of Financial Services (DFS) has ordered insurers offering force-placed insurance in New York to submit proposals for new premium rates after it was found that they overcharged New York homeowners to the tune of millions of dollars. The proposals must be submitted by July 6, 2012.
A bank or mortgage servicer places force-placed insurance on a homeowner's property when the homeowner has failed to maintain insurance as required by the terms of the mortgage. Rates for force-placed insurance can be three times to as much as ten times the cost of normal homeowner's insurance, while offering less protection to the homeowner.
The evidence of higher than necessary insurance premiums was made clear at a recent DFS hearing. Also, DFS discovered that the force-placed insurance market lacks the sort of competition that would keep premiums down. In New York, two companies have 90 percent of the market. In addition, the hearings made clear that high force-placed insurance costs are having a terrible impact on homeowners, while banks and insurers are profiting off of the payments.
"The extra expense of force-placed insurance can push a family over the foreclosure cliff because they have no choice than to pay a lot more for a lot less." Governor Cuomo said. "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."
Financial Services Superintendent Benjamin M. Lawsky 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."
As a result of the foreclosure crisis, the size of the force-placed insurance market has grown from $1.5 billion in 2004 to $5.5 billion in 2010.
The order was sent to American Security Insurance Company (Assurant), QBE Insurance Corporation, and American Modern Home Insurance Company. These insurers make up more than 90 percent of the force-placed insurance market in New York and are also the major players in the U.S. as a whole.