New York State Department of Financial Services 11 NYCRR27 (Insurance Regulation 202)
The New York State Department of Financial Services has published the Final Adoption of Regulation 202 (11 NYCRR 227), titled Regulation of Force-Placed Insurance. The regulation is effective February 7, 2015.
NEW YORK STATE
DEPARTMENT OF FINANCIAL SERVICES
11 NYCRR 227
(INSURANCE REGULATION 202)
REGULATION OF FORCE-PLACED INSURANCE
I, Benjamin M. Lawsky, Superintendent of Financial Services, pursuant to the authority granted by Sections 202, 301 and 302 of the Financial Services Law and Sections 301, 308, 2110, 2303, 2304, 2324, and 2403 and Articles 21, 23, 24 and 34 of the Insurance Law, do hereby promulgate a new Part 227 of Title 11 of the Official Compilation of Codes, Rules and Regulations of the State of New York (Insurance Regulation 202), to take effect upon publication in the State Register, to read as follows:
(ALL MATERIAL IS NEW)
Section 227.0 Purpose
(a) The purpose of this Part is to set forth rules for the rates for and placement of force-placed insurance and to prohibit certain practices related to force-placed insurance in order to protect homeowners and investors from harm caused by excessive force-placed insurance rates, questionable business practices and relationships in the force-placed insurance industry, and inadequate notice of force-placed insurance.
(b) An investigation by the department found that the rates for force-placed hazard insurance bore little relation to insurers’ actual loss experience, resulting in high profits, a portion of which insurers commonly passed on to mortgage servicers and their affiliates through commissions, other payments, and reinsurance arrangements, to the detriment of homeowners and investors. The department also found that homeowners often failed to receive adequate notice that insurers and servicers were force-placing insurance policies on their homes. Section 227.2 of this Part sets minimum adequate notification requirements to ensure homeowners understand their responsibility to maintain homeowners’ insurance, and that they may purchase voluntary homeowners’ insurance coverage at any time.
(c) The department’s investigation found that insurers offered financial incentives to mortgage servicers and their affiliates, including commissions to servicer-affiliated insurance producers who performed little or no work, and entered into arrangements that transferred a significant percentage of force-placed insurance profits to affiliates of servicers. In addition, one insurer provided force-placed insurance on mortgages serviced by an affiliate of the insurer. These practices not only artificially inflated premiums charged to homeowners, but
created a conflict of interest in that servicers had an incentive to purchase more costly force-placed insurance where they earned a portion of the premiums or profits from the placement of force-placed insurance. Section 227.6 of this Part prohibits these practices.
(d) Further, actual loss ratios for force-placed hazard insurance have been significantly lower than both the expected loss ratios insurers filed with the department and the actual loss ratios for voluntary homeowners’ insurance. Insurers have failed to regularly update and adjust their rates despite these significant discrepancies. Section 227.7 of this Part requires insurers to regularly inform the department of loss ratios actually experienced and re-file rates when actual loss ratios are below 40 percent, and sets a minimum permissible loss ratio for rate filings to ensure that premiums are set at a rate reasonably related to paid claims.
Please click here to view the regulation in its entirety.
Safeguard Properties is the mortgage field services industry leader, preserving vacant and foreclosed properties across the U.S., Puerto Rico, Virgin Islands and Guam. Founded in 1990 by Robert Klein and headquartered in Cleveland, Ohio, Safeguard provides the highest quality service to our clients by leveraging innovative technologies and proactively developing industry best practices and quality control procedures. Consistent with Safeguard’s values and mission, we are an active supporter of hundreds of charitable efforts across the country. Annually, Safeguard gives back to communities in partnership with our employees, vendors and clients. We also are dedicated to working with community leaders and officials to eliminate blight and stabilize neighborhoods. Safeguard is dedicated to preserving today and protecting tomorrow. Website: www.safeguardproperties.com.