NU Online News Service, June 13, 2:49 p.m.EST

The New York State Department of Financial Services orderedforce-placed insurers to submit new proposals for premium rates,contending that the industry charges homeowners too much.

The order was issued yesterday, a few weeks after publichearings into the insurance programs that critics contend is poorlymanaged and places an extraordinary burden on homeowners alreadystruggling to make mortgage payments.

Carriers will have until July 6 to comply with the order.

In a statement, the department says evidence obtained atthe hearings in Manhattan in mid-May showed that premiums arehigher than typical homeowners insurance, and there is littlecompetition to drive rates down. In New York, two companies cornerclose to 90 percent of the market, the department says.

The department adds that the cost has a "terrible impact onhomeowners, while banks and insurers are profiting off of thepayments."

"Our hearings suggest a lack of competition, high prices, andlow loss ratios, all of which hurt homeowners," says Benjamin M.Lawsky, Financial Services superintendent in a statement. "Based onwhat we learned at the hearings, it is now appropriate for insurersto propose new rates along with justification for those newrates."

The department said that the foreclosure crisis has caused agrowth in the insurance market from $1.5 billion in 2004 to $5.5billion in 2010.

Force-place insurance is homeowners insurance placed on a homewhen homeowners fail to meet the mortgage agreement to securecoverage on their own.

During the hearing, insurers did not refute the fact thatforce-placed insurance is more expensive than typical homeownersinsurance. They say the price is higher because they cannot doadequate underwriting of the risk.

The order was sent to American Security Insurance Co., QBEInsurance Co. and American Modern Home Insurance Co. The three makeup more than 90 percent of the force-placed insurance market in NewYork, the department said, adding that the three are major playersin this line in the United States as a whole.

In a statement, American Security Insurance says, "AmericanSecurity Insurance continues to cooperate and engage in dialoguewith the New York Department of Financial Services. Lender-placedinsurance is a critical component of the national residentialmortgage system. As a leader in the industry, we are prepared torevise our lender-placed offerings to reflect mortgage marketconditions and meet the needs of New York homeowners, lenders andinvestors."

In an e-mail, QBE says it intends to comply with the Departmentof Financial Services order, adding that "the company continues tosupport the importance of this insurance as a critical part of theU.S. mortgage industry."

Consumer advocates, who have been critical of the coverage practices, praised NewYork's actions.

"At last! After decades of bringing up the outrage offorce-placed insurance, someone is finally acting!" Bob Hunter,director of insurance for the Consumer Federation of America, saysin an e-mail.

"The Center for Economic Justice applauds the leadership of[Superintendent] Lawsky and the action taken by the Department ofFinancial Services to lower excessive force-placed insurance ratesand to protect vulnerable consumers," says Birny Birnbaum,executive director for CEJ in an e-mail statement.

This story was updated on June 14 at 9:22 a.m. EDT withcomments from QBE.