Forced-placed insurers will not be allowed to place suchcoverage on mortgaged property serviced by a bank or serviceraffiliated with the insurer under regulations dealing with thecontroversial product proposed Thursday by the New York Departmentof Financial Services.

The proposed rule will also not allow a force-placed carrier to paycommissions or reinsure force-placed insurance with a mortgageservice they are affiliated under the proposed rules.

That the strict rules governing placing of force-placed orlender-placed insurance would be proposed was announced by BenjaminLawsky, superintendent of the NY DFS, at the time he settledenforcement actions against Assurant and QBE, the top issuers ofFPI, starting in March.

In the first case, Assurant agreed to refund $14 million to NewYork homeowners required to buy forced-placed homeowners insurance,as well as cut its rates and institute other reforms. QBE latersettled under similar terms.

Other provisions of the proposed regulations will bar payment ofcontingent commissions based on underwriting profitability or lossratios; bars payment of expenses to services who secure FPIcoverage from them; require “adequate” disclosure of homeownerresponsibility to obtain insurance on a home insured by a mortgage;caps amount of coverage required; and requires refund payments incases where there is overlapping coverage.

Consistent with the settlements with Assurant and QBE, FPIcarriers will be required to regularly inform the department ofloss ratios actually experienced and re-file rates when actual lossratios are below 40%, New York officials said.

In announcing that the new rules are being proposed, Gov. AndrewCuomo called them “groundbreaking.”

He said they are a “major step in righting this injustice andreforming the industry by proposing tough new regulations toprotect homeowners.

“Insurers should be on notice that New York State is going tocontinue rooting out abuse in the industry and protectingtaxpayers,” Cuomo said.

Lawsky said the two-year probe that resulted in the enforcementactions “uncovered a kickback culture in this industry thatinflated premiums and did serious damage to strugglinghomeowners.

“These new rules will help ensure that homeowners remainprotected and force-placed insurers don't simply slide back to thebad old practices of the past,” Lawsky said.