NU Online News Service, July 11, 2:23 p.m.EDT

New York State's hearings last month on force-placed insuranceappear to be just the beginning of an effort to reform industrypractices around the coverage nationwide.

In May, the New York State Department of Financial Services heldhearings for three days on force-placed, or lender placed,insurance practices.

Consumer advocates said then that the business needs tighter regulation and even the state'ssuperintendent of Financial Services expressed some disquiet over the explanation he received fromcarriers over their business practices.

The hearings produced an order from New York Gov. Andrew Cuomoto submit a new proposal for premium rates sayingthe state's homeowners were overcharged "to the tune of millions ofdollars."

At the federal level, the Consumer Financial Protection Bureauis drafting new rules aimed at giving consumers more rights todeal with force-placed insurance, and the nation's major mortgagelender, Fannie Mae is reviewing its relationships with servicersand insurers.

Fannie Mae has called for a request for proposals fromforce-placed insurers, a process aimed at reducing costs to bothFannie Mae and the consumer. Fannie Mae says the current systemresults in "an incentive arrangement between lender-placed insurersand servicers that disadvantages Fannie Mae and the homeowner."

When asked about the status of the RFP, Fannie Mae issued astatement saying it "is pleased to be making progress on thelender-placed-insurance RFP process so that we can lower costs forhomeowners, taxpayers, and Fannie Mae while reducing a barrier thatstruggling borrowers face in getting current on their mortgage. Weare currently finalizing the list of providers that will advance tothe next round in the process."

At the state level, more regulators are also asking questionsabout force-placed-insurance practices. The National Association ofInsurance Commissioners plans to hold a hearing looking intoinsurer practices at its upcoming meeting in August.

To consumer advocates who criticized the insurance programs intestimony at the New York hearing and elsewhere, the problems withforce-placed insurance are not unique to New York.

J. Robert Hunter, director of insurance for the ConsumerFederation of America says that among the issues with force-placedinsurance is that regulators have done little to oversee theproduct. He notes that states have not reviewed rates in years, ina line of business where the same large insurance providers chargethe same rates throughout the country.

It is a highly profitable line, says Birny Birnbaum, executivedirector for the Center for Economic Justice, but the rates thatare charged are not justified by loss ratios.

According to his calculations, from 2004 to 2011, whilehomeowners insurers' loss ratios ran from a low of 48.2 in 2006 toa high of 76 in 2011, force-placed insurers were dramatically less,running in the 20s.

The highest loss ratio over that eight year period forforce-placed insurers was 53.5 in 2005, says Birnbaum. In that sameyear, homeowners insurers raked-up a loss ratio of 75.2.

The lending institutions and mortgage servicers also come undercriticism since they profit on the commissions they receive,referred to as kickbacks by the consumer advocates.

"The banks have a legitimate need for insurance to be in placeto protect their collateral," says Hunter. "It could be done asblanket coverage or individually as long as it is fairly priced.They have got to stop ripping off poor people as they have beendoing for decades."

For their part, the two leading force-placed insurers, Assurantand QBE have both expressed their desire to cooperate withregulators in testimony in New York and Florida.

In the New York case, Assurant issued a statement saying that ithas submitted proposed revisions to its program plans to continueto cooperate with the state, but declined additional comment.

It issued a separate statement saying it plans to participate inthe NAIC's upcoming hearings and looks "forward to discussing thefacts about the value of our program, the steps we take to protectcustomers, and the assistance we provide homeowners who wouldotherwise go unprotected."

QBE has expressed similar sentiments, noting that the reason theinsurance is more expensive is because it does not select the risksit insures nor underwrites them. The carrier is obligated in coverall risks in the lender's portfolio.

Regarding regulators' queries, QBE says in a statement that it"has been fully cooperative with all its regulators and has made ita point to communicate frequently and transparently with each ofthem."