A state probe of force-placed homeowners insurance has led regulators to order three specialty insurance companies to submit new premium rate proposals by next month because they were overcharging New York State consumers.
The investigation by the Department of Financial Services, together with a recent public hearing, found that insurers have been charging too much for the insurance coverage, costing homeowners millions of dollars extra.
The state said there is too little competition in the market, and it also found that the high costs "are having a terrible impact on homeowners, while banks and insurers are profiting off of the payments."
A bank or mortgage servicer imposes force-placed insurance on a home when the homeowner fails to maintain insurance as required by the mortgage. Rates can range from three times to 10 times the cost of regular homeowners' insurance, but with less protection to the homeowner.
Because of the national mortgage and foreclosure crisis, the market has grown from $1.5 billion in 2004 to $5.5 billion in 2010.
"The extra expense of force-placed insurance can push a family over the foreclosure cliff, because they have no choice than to pay a lot more for a lot less," Gov. Andrew M. Cuomo said in a news release. "It's our job to see that rates are priced fairly and homeowners are protected from paying more than what is fair."
Regulators ordered three insurers, which together control 90 percent of the market in the state and are the biggest players nationally, to submit new rate plans by July 6. The three companies are Assurant's American Security Insurance Co., Australian-owned QBE Insurance Corp. and American Modern Home Insurance Co.
"Our hearings suggest a lack of competition, high prices and low loss ratios, all of which hurt homeowners," Superintendent of Financial Services Benjamin M. Lawsky said in the release.