Assurant, Inc. has agreed to refund $14 million to New Yorkerswho were required to buy force-placed homeowners insurance.

The insurer also agreed to cut its rates and institute otherreforms as part of a settlement with the state.

Benjamin Lawsky, superintendent of the state Department ofFinancial Services, asked QBE, the other major writer offorce-placed policies, to step to the plate and accept the samereforms Assurant has agreed to.

Lawsky also said regulations that will soon be issued by hisagency will apply to all New York-licensed lender-placed insurersof properties in the state.

Amongst the changes Assurant agreed to, the insurer must limitpremium so that its maximum gross profit plus expenses is no morethan 38 percent of premiums, Lawsky said.

Robert Hunter, director of insurance for the Consumer Federationof America, said this rate is “marginally satisfactory, dependenton how captive reinsurance arrangements are included in theratio.”

Assurant will also be required to pre-file its rates for reviewevery three years and to re-file its rates for the next year if itsactual rates in any year result in a loss ratio of less than 40percent for the immediately preceding calendar year.

It must also report annually to DFS on its actual loss ratio,earned premiums, itemized expenses, losses, and reserves.

“By agreeing to implement these critical reforms, Assurant isserving as an industry leader,” Lawsky said.

He added that the reforms agreed to by Assurant will make it “astronger and better company focused on its customers.”

Lawsky cautioned, “Our work on this issue is far from done andwe expect that this settlement will help lead a nationwide reformeffort for this industry.”

In commenting on the agreement, Gene Mergelmeyer, president andCEO of Assurant Specialty Property, said, “With matters resolvedwith the New York Department of Financial Services, we look forwardto filing our next-generation lender-placed product as we continueto meet the needs of our clients and customers in New York withoutstanding service and support.”

Assurant Specialty is based in Atlanta. The two subsidiariesthrough which Assurant sells forced-place insurance are AmericanSecurity Insurance Company (ASIC) and American Bankers InsuranceCompany of Florida (ABIC).

In a statement to PC360, Hunter said, “The DFS deserves creditfor this strong step in the right direction.”

But he said DFS must issue a regulation that ensures that allforce-placed lenders follow this model “so that the prohibitedpractices provisions [agreed to in the settlement] becomeeffective.”

New York, California and Florida have led a recent effort toreduce the cost of this specialty product to distressed homeownershurt by the recent downturn in the economy.

California is pressuring insurers— including Assurant and QBE—tocut rates. QBE recently agreed to reduce its rates by 35 percenteffective March 15.

Investigative hearings have also been held in New York andFlorida on the issue, and the National Association of InsuranceCommissioners held its own hearings as well.

The DFS statement said its probe had found that Assurantcompeted for business from the banks that were foreclosing ondistressed properties and mortgage servicers of these propertiesthrough what is known as “reverse competition.”

That is, rather than competing by offering lower prices, theinsurers competed by offering what is effectively a share in theprofits, the statement said.

“This profit sharing pushed up the price of force-placedinsurance by creating incentives for banks and mortgage servicersto buy force-placed insurance with high premiums. That's becausethe higher the premiums, the more that the insurers paid to thebanks,” the statement said.