Florida regulators are investigating the force-placed insurance industry, the state's insurance commissioner says.
Banks purchase force-placed insurance when mortgage borrowers stop paying for homeowners insurance. Though the product itself is legal, investors and consumer advocates have alleged that banks are overpaying for the policies in exchange for kickbacks from insurers.
"We're looking at some of the business practices to ensure they comply with Florida law," says Kevin McCarty, the state's insurance commissioner. "If you look at the general allegations that have been made by [consumer advocates Birny] Birnbaum and [Robert] Hunter, those are the areas that would be of interest."
Birnbaum and Hunter have argued that the industry suffers from "reverse competition," in which servicers and insurers inflate the price of force-placed policies and split the proceeds.
Florida's review is in line with similar reviews in New York and California. But because the catastrophe-prone state accounts for more than 40% of the force-placed insurance premiums nationwide, any actions it takes would carry outsized weight.
McCarty's announcement of the investigation, in an interview Friday, comes ahead of a National Association of Insurance Commissioners hearing on force-placed insurance scheduled for Thursday in Atlanta. McCarty is among those who requested the hearing, he says.
"The sheer growth of the marketplace has raised concerns," McCarty says.
Though insurers would bear the brunt of any regulatory actions, banks have a lot at risk, too. Banks receive a portion of force-placed premiums through commissions, reinsurance deals and other payments from the specialty carriers that offer it.
New York's Department of Financial Services estimates that total force-placed premiums have swollen to more than $6 billion a year since the housing crisis began.
(Category: Servicing, Risk Management)
