New York Governor Andrew Cuomo has proposed a series of sweeping reforms for that state’s force-placed insurance industry. The reforms come in the wake of an investigation that found numerous instances of abuse among lenders and force-placed insurance providers.
Forced-placed insurance, which is insurance that a lien holder places on a property to cover a lapse of mortgage insurance, has drawn particular scrutiny from regulators because it has proven relatively easy to abuse. The cost of the insurance is paid upfront by the lien holder, but added to the balance of the lien. Abuse has been particularly prevalent in cases where the loan servicer owns the insurer.
“Two years ago, my administration launched an investigation of the force-placed insurance industry that revealed widespread abuses of consumers by banks and mortgage companies,” Governor Cuomo said. “Today we are taking 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.”
The New York Department of Financial Serices (DFS) began its investigation of the force-placed insurance business in 2011. It found that force-placed insurance can be two to ten more times expensive than voluntary insurance, despite offering far less protection.
“Our investigation uncovered a kickback culture in this industry that inflated premiums and did serious damage to struggling homeowners,” said Benjamin Lawsky, superintendent of DFS. “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.”
The new regulations would prevent force-placed insurers from issuing insurance on mortgaged property serviced by a bank or property affiliated with the insurer. They would also prohibit the payment of commission on force-placed insurance policies.