Of all Forced-Place Insurance (FPI) policies in place across the entire country, Florida remains the “epicenter” of FPI in the US with 35 percent of the countrywide FPI premium residing in the state alone. Those are huge numbers, akin to the high cost for an insurance product that offers the consumer less protection than a standard policy, but with higher rates.
A hearing called in May by the Florida Insurance Commissioner was designed to solicit public comment on the issue and - specifically - a rate filing by American Security Insurance Company (ASIC), part of the Assurant Group. ASIC, which is reported as writing almost 70 percent of the Forced-Place Insurance premium across the entire state, proposed no change in its rate structure.
“[Forced-Place Insurance] rates are inflated by reverse competition,” said J. Robert Hunter, Director of Insurance for CFA, former Texas Insurance Commissioner and a consulting actuary. “FPI insurers compete for business by larding premiums with expenses to provide kickbacks to mortgage servicers. The mortgage servicer passes the cost of the FPI on to borrowers, but takes a big piece of the premium in cash or subsidized services. The outrageous ASIC filing shows the results of reverse competition - massively excessive rates.”
The mortgage and housing crisis of 2008 saw a massive growth in the Force-Place Insurance industry. Mortgage holders found to have allowed their home insurance to lapse were forced into policies by mortgage holders in an effort to protect the lender’s investment. However, according to the source, an FPI policy typically comes at a rate two or three times that of a standard policy, while providing no coverage for contents and household effects, liability or additional living expenses.
In some cases, FPI insurers have put force-place insurance policies on homes that already had insurance - without the homeowner’s knowledge or consent. The increased cost pushed many a struggling homeowner to the brink of foreclosure.
Many a Force-Placed insurance lawsuit has alleged similar wrongdoing, and banks have been pushed into settlement agreements after they were found to be vending gutted policies at substantially higher premiums, while enjoying kickbacks and other perks from insurance companies who came to play in the FPI sandbox.
What’s more, the monitor of a $25 billion national mortgage settlement brought in last year gave five servicers passing grades for compliance in spite of some banks and other institutions dropping the ball.
For example, JPMorgan Chase was identified as dragging its heels on its commitment under the terms of the settlement to cancel Forced-Place Insurance policies within 15 days of receiving proof that a borrower carries adequate insurance on his own.
In many cases this didn’t happen. Overall, settlement monitor Joseph A. Smith was swamped with nearly 60,000 complaints from consumers with regard to delays in the workings of the settlement.
“Servicers have additional work to do both in their efforts to fully comply with the national mortgage settlement and to regain their customers’ trust,” said Smith, a former North Carolina banking commissioner who now heads the Office of Mortgage Settlement Oversight. “The settlement is having the intended effect of uncovering problems with servicer performance.”
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Meanwhile, angst in the state of Florida over Forced-Place Insurance premiums continues. “The proposed rates are a sham - ASIC has filed a rate request 25 percent higher than they actually want so they can ‘settle’ for the 20 percent rate cut they were ready to accept all along,” said Birny Birnbaum, executive director of the Center for Economic Justice and a national expert on FPI. “Consumers in Florida and around the country desperately need the Insurance Commissioner to get it right with FPI rates. Anything less than a rate cut of 50 percent will be unfair to consumers and a victory for Assurant.”