Alert June 11, 2013

New York Department of Financial Services Reaches Agreement with Force-Placed Insurers

Claiming "that its nation-leading force-placed insurance reforms will now cover 100 percent of the New York market," the New York Department of Financial Services announced that it settled with four providers of lender-placed insurance. DFS assessed a civil money penalty of $1 million against one of the insurers, which was also required to lower its premium rates. The other three insurers did not face civil money penalties, as they were not alleged to have participated in "kickbacks" by which insurers purportedly competed for lenders’ business through profit-sharing arrangements with the lenders. These three insurers signed "voluntary codes of conduct" through which they agreed not to engage in conduct including: (1) issuing force-placed insurance through affiliated lenders or servicers; (2) obtaining reinsurance through affiliated lenders or servicers; (3) paying commissions to lenders or servicers; (4) paying internal commissions based on underwriting profitability or loss ratios; (5) providing free or below-cost outsourced services to lenders and servicers; and (6) making any payments to servicers, lenders, or their affiliates to secure business.

The settlements with the force-placed insurers are part of a growing trend to reform the industry. Previously, both the DFS and the California Department of Insurance have entered into settlements with force-placed insurers (see April 2, 2013 Alert and November 13, 2012 Alert, respectively). The FHFA has also issued a proposal to restrict mortgage sellers and servicers from receiving commissions or other remuneration associated with maintaining force-placed insurance with certain providers (see April 2, 2013 Alert).