Jan 8, 2015
DFS adopts regulation governing forced placed insurance
This weeks state Register included a notice of adoption of a new regulation designed to govern Force-Placed Insurance [I.D. No. DFS-39-13-00022-A Filing No. 1075, Filing Date: 2014-12-19, Effective Date: 30 days after filing]. The regulation, which adds a new Part 227 (Regulation 202) to Title 11 NYCRR, sets forth rules regarding, among other things, the rating and placement of, and practices related to, force-placed insurance. Specifically, it sets rules for the rates for and placement of force-placed insurance and prohibits certain practices related to force-placed insurance in order to protect homeowners and investors from harm caused by excessive force-placed insurance rates, questionable business practices and relationships in the force-placed insurance industry, and inadequate notice of force-placed insurance.
The rule sets minimum adequate notification requirements to ensure homeowners understand their responsibility to maintain homeowners insurance, and that they may purchase voluntary homeowners insurance coverage at any time [Section 227.2] and the maximum amount of force-placed insurance coverage that an insurer may issue on a New York property [Section 227.3]. It also requires an insurer, insurance producer, or affiliate that receives correspondence related to force-placed insurance from a borrower on behalf of a servicer to accept any reasonable form of written confirmation of a borrowers existing insurance coverage [Section 227.4]. The rule also requires an insurer, insurance producer or affiliate to refund all force-placed insurance premiums for any period of overlapping insurance coverage within 15 days of receiving evidence demonstrating that the borrower has had in place hazard insurance coverage that complies with the mortgages requirements to maintain hazard insurance [Section 227.5] and prohibits the payment of commissions to servicer-affiliated insurance producers; the sharing of force-placed insurance premiums or risk with a servicer affiliate; and issuing force-placed insurance on property serviced by a servicer affiliated with the insurer [Section 227.6]. Finally, the rule requires insurers to regularly inform the DFS of loss ratios actually experienced and refile rates when actual loss ratios are below 40 percent, and sets a permissible loss ratio for rate filings to ensure that premiums are set at a rate reasonably related to paid claims [Section 227.7].
The adoption of the rule follows a DFS inquiry over two years ago to review whether rates for force-placed insurance are appropriate or excessive and to examine the relationships between and payments to and from insurers, banks, mortgage servicers and insurance agents and brokers. At that time, the DFS has sent letters to 15 financial services companies directing them to provide written and oral testimony and answer their questions. The companies included banks, mortgage servicers, insurance agents and brokers, insurers and reinsurers. The DFS began looking into force-placed insurance in October 2011, when it uncovered evidence of potentially problematic and abusive practices in the industry occurring at the expense of homeowners and investors, claiming that, "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."