UPDATE 4-Assurant settles with New York over "force-placed" insurance
* Insurer to pay $14 million penalty
* Will make refunds to some harmed homeowners
* Other insurers, including QBE, asked to "step up to plate" (Adds QBE)
By Karen Freifeld and Ashutosh Pandey
March 21 (Reuters) - Assurant Inc settled a New York probe of its "force-placed" insurance by agreeing to pay the state a $14 million penalty, refund some homeowner premiums and reform certain business practices.
The investigation found Assurant made improper financial arrangements with banks and mortgage servicers that pushed up the price of insurance, according to the New York State Department of Financial Services, which conducted the probe.
Assurant, which will offer new products with lower rates in New York, settled without admitting or denying wrongdoing.
Force-placed policies are typically taken out by banks or other lenders on homes where the owner does not have sufficient or any coverage. Regulators in the past have accused insurers of dramatically overcharging for such policies.
Assurant, the country's largest force-placed insurer, is the first to settle an industry-wide probe launched in October 2011 by DFS, New York state's insurance regulator.
In a statement announcing the agreement, DFS superintendent Benjamin Lawsky said other force-placed insurers, including QBE, should "step up to the plate."
Paula Symons, a spokeswoman for QBE, declined comment.
"Our investigation found that insurers and banks built a network of troubling relationships and payoffs that helped drive premiums sky high," Lawsky said.
In some cases, the probe found, premiums were ten times higher than premiums for voluntary insurance.
The settlement follows an agreement a unit of Assurant reached last year with the California Department of Insurance to reduce the premium rates for its force-placed hazard insurance product by 30.5 percent.
According to the terms of the New York settlement, Assurant is required to lower the cost of force-placed insurance for all non-flood business and file its premium rates for review with the DFS every three years.
The New York probe found an Assurant subsidiary did not file for lower rates despite years it paid out less than half of what it projected in claims.
REFUNDS AND COMMISSIONS
Assurant will establish a refund opportunity program, through which harmed homeowners may be eligible for refunds of a part of their premiums.
The settlement bars Assurant from paying commissions to a bank or a mortgage servicer for generating force-placed insurance policies, although that and other reforms only take effect when they apply to all insurance companies writing the insurance in New York.
Last February the DFS subpoenaed Assurant, requesting information regarding its force-placed insurance business.
The investigation found that Assurant competed for business from banks and mortgage servicers through what is known as "reverse competition."
"Rather than competing by offering lower prices, the insurers competed by offering what is effectively a share in the profits," the regulator said in a statement.
"The higher the premiums, the more that the insurers paid to the banks."
The regulator noted that JPMorgan Chase has made about $600 million since 2006 by taking 75 percent of the profit from the force-placed business it gave Assurant. The money came through a reinsurance arrangement with Banc One Insurance Company, a JPMorgan Chase affiliate.
"We receive no commissions on lender placed insurance. We do have a risk-sharing relationship with the insurance provider. We continuously review our policies to ensure they are meeting our customers' needs," JPMorgan spokeswoman Amy Bonitatibus said.
In the United States, the force-placed homeowner's market is dominated by Assurant and Australian insurer QBE.
Assurant shares closed down 1.5 percent at $43.85 on the New York Stock Exchange on Thursday. (Additional reporting by Ashutosh Pandey in Bangalore; Editing by Supriya Kurane and Phil Berlowitz)
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