N.Y. Regulators Expand Probe Into Force-Placed Insurers

New York regulators are expanding their investigation into the so-called force-placed insurance that target homeowners in financial distress.

Benjamin Lawsky, the state’s superintendent for the financial services department, said on April 5 that he has asked largest licensed force-placed insurers operating in New York to provide a detailed accounting of their expenses, claims payments and profits.

Regulators say initial findings from their investigation have raised more concerns.

Regulators Seek More Documents From Insurers

Lawsky said his department has sent formal document requests to several insurers. These companies include: Balboa Insurance Company; QBE Insurance Corporation; QBE Financial Institution Risk Services Inc.; American Security Insurance Company (Assurant); American Bankers Insurance Company of Florida (Assurant); Meritplan Insurance Company; American Modern Home Insurance Company; Empire Fire and Marine Insurance Company; and Fidelity and Deposit Company of Maryland.

These insurers will now have to provide to regulators extensive information and supporting documentation, including:

• An actuarial or statistical justification for force-placed insurance rates currently on file with the department;
• A detailed explanation of how rates and expected loss ratios are calculated;
• A detailed explanation and itemized report of insurers’ expenses relating to force-placed insurance; and
• A detailed explanation and itemized report of the payments insurers receive relating to force-placed insurance.

Additionally, Lawsky said his department will hold public hearings in May to review whether rates for force-placed insurance are excessive. The hearings will also examine the relationships between — and payments to and from — insurers, banks, mortgage servicers and insurance agents and brokers.

The superintendent also said testimony will be taken from homeowners affected by force-placed insurance and from the banks, insurers, reinsurers and brokers who operate in the force-placed market. Information gained from the hearings will guide the department’s future action in this area.

“It appears that force-placed insurers charge very high premiums, but pay out only a very small percentage of those premiums on claims — as little as 20 cents on the dollar. In addition, questionable payments are made to various players in the force-placed business, further increasing the profits to insurers and banks,” Lawsky said.

“We have asked insurers to provide a complete breakdown of how much they collect and where every penny goes so we can determine if the premiums are appropriate and the basis for these payments.”