* Insurer to pay $14 million penalty
* Will make refunds to some harmed homeowners
* Other insurers, including QBE, asked to "step up to plate"
By Karen Freifeld and Ashutosh Pandey
March 21 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
"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 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)