Assurant Inc. (AIZ), the largest seller of "force-placed" home insurance in the U.S., agreed to pay a $14 million penalty and provide restitution to some New York homeowners under a settlement agreement with state regulators.
Gov. Andrew Cuomo on Thursday said the pact address an "intricate web of relationships between insurers and banks that pushed distressed families over the foreclosure cliff."
The policies are "forced" on borrowers who drop their required, standard homeowners coverage, which protects banks' collateral. Struggling borrowers may seek to save money by canceling the policies, unaware they will be hit by much- costlier coverage in its absence.
The settlement follows hearings by the New York Department of Financial Services last year that grilled Assurant and its banking partners about their relationships. The state maintained those relationships have been highly profitable to the companies but harmful to consumers.
Under the terms of the agreement, Assurant agreed to lower the cost of many of the home-insurance policies it sells in the state and to eliminate "improper and unfair practices" that the state said helped Assurant inflate premiums. These include paying commissions to banks or mortgage servicers on the policies they provide and using reinsurance companies affiliated with the mortgage companies.
Assurant agreed to provide restitution to some homeowners who were harmed by its practices, including homeowners who were foreclosed on because of the cost of the coverage, the state said.
The state launched its investigation into the force-placed insurance industry in the fall of 2011. The state investigation revealed that the premiums charged to homeowners for the coverage can be two to 10 times higher than premiums for voluntary insurance, "despite the fact that force-placed insurance provides far less protection for homeowners than voluntary insurance," state officials said in a news release Thursday.
"Insurers and banks built a network of troubling relationships and payoffs that helped drive premiums sky high," said Benjamin Lawsky, superintendent of the state's Department of Financial Services. "Those improper practices created significant conflicts of interest and saddled homeowners, taxpayers, and investors with millions of dollars in unfair and unnecessary costs."