Forced-placed insurers will not be allowed to place such coverage on mortgaged property serviced by a bank or servicer affiliated with the insurer under regulations dealing with the controversial product proposed Thursday by the New York Department of Financial Services.

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

That the strict rules governing placing of force-placed or lender-placed insurance would be proposed was announced by Benjamin Lawsky, superintendent of the NY DFS, at the time he settled enforcement actions against Assurant and QBE, the top issuers of FPI, starting in March.

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

Other provisions of the proposed regulations will bar payment of contingent commissions based on underwriting profitability or loss ratios; bars payment of expenses to services who secure FPI coverage from them; require “adequate” disclosure of homeowner responsibility to obtain insurance on a home insured by a mortgage; caps amount of coverage required; and requires refund payments in cases where there is overlapping coverage.

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

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

He said they are a “major step in righting this injustice and reforming the industry by proposing tough new regulations to protect homeowners.

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

Lawsky said the two-year probe that resulted in the enforcement actions “uncovered a kickback culture in this industry that inflated premiums and did serious damage to struggling homeowners.

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

Instant Insights /

New York Proposes New Forced Placement Rules

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