New York State regulators have proposed a sweeping set of rules to reform the force-placed insurance industry, in the latest sign that the government is taking steps to reform what critics call an abusive industry practice that overcharges homeowners.
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The rules would prevent New York insurers from paying commissions to banks or servicers, and would prevent insurers from issuing policies on properties serviced by affiliated companies, among other changes.
New York is the first state to propose comprehensive ban on force-placed insurance payments to banks. National regulators, including the Federal Housing Finance Agency and the department of Housing and Urban Development, have proposed their own changes.
"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 in the news release. "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."
Force-placed insurance is insurance taken on out on property by a lender or servicer when the homeowner does not maintain the insurance the mortgage requires. The DFS's investigation into the practice, begun in 2011, found that premiums charged to homeowners under force-placed insurance can be up to 10 times as high as under voluntary insurance.
It also found that insurers competed for business by offering banks and servicers a portion of the profits on the policies - a practice the DFS called "kickbacks" - thereby encouraging banks to choose policies with high premiums.
The rules proposed are similar to those the New York Department of Financial Services reached earlier this year with leading force-placed insurers, but would apply to the whole industry, including new entrants in the market.
"Our investigation uncovered a kickback culture in this industry that inflated premiums and did serious damage to struggling homeowners," said Benjamin Lawsky, superintendent of the New York DFS, in the news release. "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."
Last week, JPMorgan (JPM)
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