Forced-placed insurers operating in New York have less than a month to propose new premium rates after a state Department of Financial Services (DFS) investigation found that they overcharged homeowners.
DFS ordered insurers to submit proposals for new rates by July 6. The forced-placed insurance market lacks competition and companies have overcharged New Yorkers “millions of dollars,” according to the department.
Banks or mortgage servicers place forced-placed insurance, which is also known as lender-placed insurance, on properties when homeowners do not maintain insurance required in mortgage terms. The insurance offers less protection than normal homeowner’s insurance, but with rates that can be three to 10 times more expensive, DFS said.
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“Our hearings suggest a lack of competition, high prices, and low loss ratios, all of which hurt homeowners,” DFS Superintendent Benjamin Lawsky said in a news release. “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.”
DFS ordered American Security Insurance Co., QBE Insurance Corp., and American Modern Home Insurance Co. to submit new rates. Those three insurers account for over 90 percent of the force-placed insurance market in New York and are major players throughout the United States, according to DFS.
The forced-placed insurance market has grown rapidly in recent years. It was $5.5 billion in 2010, up from $1.5 billion in 2004.
Contact Seltzer at rseltzer@cnybj.com
