Florida continued the crackdown on high rates for force-placedhomeowners insurance, announcing it has ordered AmericanSecurity Insurance Co. to reduce its current rates by 10percent.

The order from the state Office of Insurance Regulationmandates that American Security institute a number of reformsdealing with the business practices associated with sale of thisproduct, including a ban on paying commissions to the mortgageservicer who placed the insurance.

The rate reduction will result in a savings to consumers ofabout $51 million, OIR says.

American Security, a subsidiary of Assurant, has thelargest market share of lender-placed policies in Florida with morethan 142,000 policies in force representing a total premium of $508million, the OIR says. 

Rate cuts and policy changes to eliminate high charges forforce-placed homeowner' insurance are sweeping the nation, led byinsurance regulators in New York and California.  

Furthermore, courts are nearing final action on nationwide classaction lawsuits filed in Federal District Court in Miami thatinvolves six of the largest mortgage servicers.

At the same time, a Federal District Court judge in New YorkSept. 30 raised the stakes higher for insurance carriers andmortgage servicers involved in placing FPI on troubled homeownersin the aftermath of the housing boom earlier in the decade thatturned out to be a huge bust.

In general, a ruling by the judge hearing the New York casemeans that carriers and mortgage servicers could be subject totriple damages. Second, the grounds for the suit make it easier tofile a nationwide class action lawsuit. And, third, it barsdefendants from claiming rates imposed through FPI were legalbecause they were approved by states, a common defense in thelawsuits.

The American Security settlement is consistent with the rateorder and reforms the Florida department entered into in Februarywith Praetorian Insurance Co. Praetorian agreed to an 18.8percent rate cut. Praetorian also agreed to make anotherrate filing on Feb. 1, 2014.

An OIR spokesperson says the agreements withAmerican Security and Praetorian, mean that 90 percent of theFlorida FPI market will be covered by new reforms.

Praetorian now includes QBE Specialty Insurance Company, asurplus lines insurer, and its affiliated admitted company, BalboaInsurance Company. They merged their lender-placed insuranceprograms into Praetorian as part of the settlement with the FloridaInsurance Department. GMAC and Balboa are the defendants in the NewYork suit.

QBE and Assurant are the defendants in the six class actionlawsuits now being processed through the Federal District Court inMiami.

Other part of the American Security settlement include arequirement to notify all current borrowers by mail and within 120days of the execution of the Consent Order to inform them aboutalternative options available for LPI coverage; a prohibitionagainst the payment of contingent commissions based on underwritingprofitability or loss ratios, either directly or through anaffiliate; a prohibition against providing free or below-costoutsourced services to a mortgage servicer; and a prohibitionagainst the payment of any incentive to a mortgage servicer as aninducement to secure LPI business.