Assurant, a publicly traded insurer based in New York, said Monday its American Security unit has reached an agreement with California's Department of Insurance to reduce rates for lender-placed insurance in the state by 30.5%.
"At a time when scores of Californians are facing economic uncertainty and underwater mortgages, we heard complaints from homeowners being forced into lender-placed policies at exorbitant prices," California Insurance Commissioner Dave Jones said Monday in a press statement. "My directive for insurers to submit new rate filings, and subsequent review of those filings, confirmed that rates were indeed excessive and needed to be lowered."
Jones estimated the agreement will save homeowners $42.7 million, with an average savings of $577 per policyholder annually.
"American Security is to be commended for being the first insurer to lower its rates," he added.
The revised rates in California will take effect in January and will apply to policies issued or renewed following thereafter, according to Assurant, which said in a filing with the Securities and Exchange Commission on Monday the new rates would lower its annual income by roughly $18 million.
The rate rollback comes amid a series of regulatory and legal challenges to force-placed insurance, which protects lenders' interests when homeowners fail to maintain insurance coverage on their properties. When coverage lapses, mortgage servicers are entitled to buy insurance on borrowers' behalf and then bill them for it.
As American Banker has reported extensively over the past two years, banks routinely receive commissions or lucrative reinsurance contracts from the insurers that offer force-placed coverage, giving both sides an incentive to keep prices high. American Banker is a sister publication to National Mortgage News.
Assurant and QBE First, the industry's two largest carriers, control around 90% of the national market.
Regulators in New York and Florida are reviewing the premiums carriers charge for the policies. The National Association of Insurance Commissioners, the standard-setting body for state insurance regulators, held a hearing in August on forced-place policies, a step that marked the first national discussion about the controversial product.