We are picking up our discussion from Sept. 20. We left off with some basic information about force-placed insurance, the profits it reaps for the insurers and the coverage gaps it results in for homeowners.
Just as Florida regulators have been investigating force-placed insurance rates, the National Association of Insurance Commissioners heard testimony about force-placed insurance last month, and the presentations brought to light a few salient facts. For example, the settlement agreement between state attorneys general and the U.S. Department of Justice -- the settlement that addressed wrongdoing in the foreclosure crisis -- included a lender-placed insurance provision, as follows: "Any force-placed insurance policy must be purchased for a commercially reasonable price."
Fannie Mae recently issued a similar guideline that directed rates to be competitively priced and commercially reasonable. And, lenders will not be reimbursed for commissions earned or any other costs incurred except the actual premium.
For consumers, the issues haven't changed. Consumers want to reduce the number of false placements, and they want the lenders to disclose the financial arrangement for placing the insurance as well as all the terms of the policies. They don't understand why the insurance rate has not relation to the price or condition of the property. And, among other things, they want assurances from state regulators that rules do not and will not favor insurers and lenders over consumers.
Insurance companies disagree on a number of points. They point out that homebuyers receive adequate notice to purchase their own coverage before the insurer purchases it for them. They also point out that the market is dominated by two carriers not because the companies have pushed others out. Other companies left after the 2004-2005 hurricane season, and that number was already down from the number of carriers before Hurricane Andrew in 1992.
Regulators will have their hands full over the next few years as they struggle to make lender-placed insurance more transparent for consumers or to find an alternative method to protect the lenders. Consumers will continue to be frustrated, though, as long as banks and insurance companies are profiting from the coverage. As with the foreclosure crisis, there is no easy answer, but enforcement of existing regulations and improved industry transparency go a long way to calming homeowners and keeping insurers honest.
Live Insurance News, "Force-placed insurance sales information released by Assurant following inquiry," Colleen Jeremy, Sept. 10, 2012
NAIC Market Regulation and Consumer Affairs Committee Public Hearing, "Overview of Lender-Placed Home Insurance," Birny Birnbaum, Center for Economic Justice, Aug. 9, 2012
Our firm helps individuals and families with homeowners insurance disputes over force-placed insurance, like the coverage we discussed above, and other types of coverage. Please go to our Miami homeowners insurance claims page to find out more about our South Florida practice.