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From Banking and Finance Law Daily, May 31, 2013

Force-Placed Insurance Reforms Cover Entire New York Market

By John M. Pachkowski, J.D.

The New York State Department of Financial Services (DFS) has reached agreement with the four remaining New York force-placed insurers that have not yet implemented the state’s “nation-leading force-placed insurance reforms.” With these four companies, the reforms now cover 100 percent of the New York market.

Benjamin M. Lawsky, Superintendent of Financial Services, said: “These reforms will now cover all of the New York market, but more can and should be done. Unless other regulators across the country move swiftly to crack down on the kickbacks and payoffs we found in the force-placed insurance industry, millions of Americans will remain at risk. We’re continuing to urge other regulators to implement the reforms New York helped pioneer so that every single homeowner is protected.” In April, Lawsky sent a letter to other state insurance commissioners urging them to implement New York’s force-placed insurance reforms nationwide.

DFS investigation. The reforms were the result of a 2011 investigation into the force-placed insurance industry that found insurers engaged in "reverse competition" whereby they competed for business by offering a share in the profits of the higher premiums paid by consumers.

Consent orders. Following the investigation, the DFS entered into a consent order with Assurant, Inc., and the prohibitions placed on Assurant were the basis of the reforms. These prohibitions include, among other things: no commissions paid to affiliates; not issuing force-placed insurance on mortgaged property serviced by an affiliate; no reinsurance activities with affiliates; and ending reverse competition practices. Subsequent to the Assurant action, the DFS entered into a settlement with QBE and Balboa Insurance Company, which QBE acquired from Bank of America in 2011. That settlement included a $10 million penalty to be paid by QBE.

The DFS entered into a settlement with American Modern Insurance that called for: restitution for homeowners based on the cost difference between their forced-place insurance premium and their last known voluntary premium; a $1 million penalty paid to the state of New York; a requirement that the company implement the state’s force-placed insurance reforms; and lowering its premium rates going forward.

Codes of conduct. The three other companies—Chubb & Son, Fidelity and Deposit Company of Maryland, and FinSecure—agreed to sign proactive codes of conduct implementing New York’s reforms, because each company had written relatively smaller volumes of force-placed insurance and were not found to have engaged in the kickback arrangements uncovered at other companies. Regarding the codes of conduct, Lawsky noted, “I'd like to particularly commend Chubb, Fidelity & Deposit, and FinSecure for stepping up to the plate and moving swiftly to adopt these important reforms.”

Companies: American Modern Insurance; Assurant, Inc.; BA Insurance Group, Inc.; Balboa Insurance Company; Chubb & Son; Fidelity and Deposit Company of Maryland; FinSecure; QBE Financial Institution Risk Services, Inc.; MeritPlan Insurance Company; QBE Insurance Corporation; QBE Holdings, Inc.

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