The state has reached a decision to help to prevent future questionable practices in the industry.
New York has faced a number of financial industry questionable practices in recent years and, among them, has been the issues with force placed insurance, where homeowners have found that they were paying far more than they would if they had found the coverage on their own.
The coverage is purchased by mortgage lenders on behalf of homeowners that have let their policies lapse.
The primary struggle that was faced in the force placed insurance has been primarily with the practices by which the coverage was purchased and not the fact that it was bought in the first place. Mortgage lenders have been accused of buying policies that come with premiums that are far above the rates that had previously been paid by the homeowners. This accusation includes the thought that the lenders are choosing a more expensive coverage because they were receiving commissions from the insurers and not because it was necessarily the ideal policy for the borrower.
The force placed insurance in these cases required property owners to make far greater payments than they had on their lapsed policies.
An investigation into this type of practice was started by the New York State Department of Financial Services in October 2011. This is the agency that supervises both the banking and insurance industries in the state. It performed its own investigation into force placed insurance practices as well as holding hearings in connection with its findings, with a number of the banks in the state, including Citibank, among others.
A major settlement has now been reached between the state and the large firm, Assurant. In a press release, the superintendent of Financial Services, Benjamin M. Lawsky, explained that “Our investigation found that insurers and banks built a network of troubling relationships and payoffs that helped drive premiums sky high. Those improper practices created significant conflicts of interest and saddled homeowners, taxpayers, and investors with millions of dollars in unfair and unnecessary costs.”
Lawsky also pointed out that the settlement that has now been reached will implement some considerable reforms that will cease that type of practice at Assurant, while offering homeowners who were victims of this practice with some restitution. The hope is that this will save millions of dollars for homeowners in New York, as well as for taxpayers, and for investors as they proceed onward with lower force placed insurance rates.