March 21 (Reuters) - New York state regulators said they have reached a settlement with Assurant Inc over “force-placed” insurance policies, with the insurer agreeing to pay $14 million in civil penalty, refund some home owners and modify certain business practices.
The much-anticipated agreement with New York State Department of Financial Services (DFS) comes as a blow for Assurant, which has justified the high premium rates all this while, citing the greater risk that lender-placed insurance carriers assume.
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.
The settlement follows the agreement that a unit of the specialty insurer reached last year with the California Department of Insurance to reduce the premium rates for its lender-placed hazard insurance product by 30.5 percent.
“The force-placed insurance industry has for too long been plagued by an intricate web of relationships between insurers and banks that pushed distressed families over the foreclosure cliff,” Governor Andrew Cuomo said.
Last February the DFS subpoenaed Assurant, requesting information regarding its lender-placed insurance business.
The investigation, launched in October, found that insurers and banks built a network of troubling relationships and payoffs that helped drive premiums sky high, in some cases ten times higher than premiums for voluntary insurance.
The investigation also 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.