The New York Department of Financial Services proposed new rulestoday that will prohibit forced-placed insurers from placing suchcoverage on mortgaged property serviced by an affiliated bank orservicer. Force-placed carriers would also be prohibited frompaying commissions on, or reinsuring, force-placed insurance withan affiliated mortgage service.

The rules are meant to address a practice wherein banks andservicing companies entered into profit-sharing agreements withforce-placed insurers, thereby incentivizing those companies toseek insurance with higher premiums. This, in turn, drove uphomeowners costs for consumers. It also spurred a probe in 2011 bythe DFS against Assurant and QBE, the two largest carriers offorced-placed insurance.

Superintendent Lawsky described the profit sharing practice as a"kickback culture" that inflated premiums unnecessarily and causedserious harm to struggling homeowners.

The DFS probes settled earlier this year. Assurant agreed torefund $14 million to New York homeowners required to buyforced-placed homeowners insurance, as well as cut its rates andinstitute other reforms. QBE also settled under similar terms.

Other provisions of the proposed regulations will bar payment ofcontingent commissions based on underwriting profitability or lossratios; bars payment of expenses to services that secure FPIcoverage from them; provide "adequate" disclosure of homeownerresponsibility to obtain insurance on a home insured by a mortgage;caps the amount of coverage required; and requires refund paymentsin cases where there is overlapping coverage.

Consistent with the settlements with Assurant and QBE, FPIcarriers will be required to regularly inform the Department ofloss ratios actually experienced and re-file rates when actual lossratios are below 40 percent.

Gov. Andrew Cuomo applauded the proposed rules."Insurers should be on notice that New York State is going tocontinue rooting out abuse in the industry and protectingtaxpayers," Cuomo said.