Magazine article American Banker

California Aiming to Lower Force-Placed Insurance Premiums

Magazine article American Banker

California Aiming to Lower Force-Placed Insurance Premiums

Article excerpt

Byline: Jeff Horwitz

California is taking aim at the prices banks and insurers charge for force-placed home insurance, the state announced on Wednesday.

California Insurance Commissioner Dave Jones said that news reports of potential abuses in the force-placed market prompted him to launch a review how banks acquire insurance coverage on the homes of mortgage borrowers who allow their insurance to lapse.

The commissioner's staff concluded that force-placed insurers paid out only a small portion of the premiums they collected in claims. This "points to excessive premiums," Jones said in a statement.

"I sent our findings to the top 10 forced-placed insurers and directed that they submit new rate filings with lower rates," he continued. The high price of the coverage is "yet another facet of lender practices associated with the mortgage crisis," he said.

Historically an overlooked niche in the mortgage servicing industry, force-placed insurance has become both prevalent and controversial because of the unprecedented stress homeowners have faced in the wake of the home-price collapse. Banks purchase force-placed policies when borrowers fail to live up to their obligation to maintain insurance on their properties. Homeowners must then pay back the servicer for premiums advanced to the insurer.

American Banker detailed in a 2010 article how the force-placed insurance premiums ran as much as 10 times those for voluntarily purchased coverage. Critics of the industry have alleged that the price is inflated by banks' demand that insurers share their premiums a arrangements that critics characterize as kickbacks.

The furor over force-placed insurance is getting out of hand, suggested Kevin McKechnie, head of the American Bankers Association's insurance association.

"It's worth reminding Americans that force-placed insurance arises as an issue only when borrowers are unable to fulfill their obligations to maintain continuous hazard coverage on their collateral," he said. …

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