ALBANY, N.Y. (AP) — New York financial officials have reached a settlement with Assurant Inc. in an investigation of insurance policies issued to banks to cover mortgage loans that calls for the company to pay a $14 million penalty and for some homeowners to get refunds.
The settlement announced Thursday followed a Department of Financial Services investigation of "force-placed" insurance, which lenders buy from an insurance company when a homeowner fails to maintain coverage required by the mortgage, often because he or she is in financial trouble.
Department Superintendent Benjamin Lawsky said the probe found "a network of troubling relationships and payoffs" between insurers and lenders that drove up premiums, which could be two to 10 times higher than those paid for voluntary insurance.
"Those improper practices created significant conflicts of interest and saddled homeowners, taxpayers and investors will millions of dollars in unfair and unnecessary costs," he said.
The agreement also covers subsidiaries American Security Insurance Co. and American Bankers Insurance Co. of Florida.
It requires Assurant to file premium rates in New York with a loss ratio of 62 percent, meaning 62 cents for claims and adjustment expenses for $1 in premiums earned. If its actual loss ratio drops below 40 percent in a preceding year, it will be required to refile rates to raise it, according to state officials.
Assurant said the agreement modifies some business practices consistent with expected New York regulations. The company admitted no wrongdoing.
Gene Mergelmeyer, president of Assurant Specialty Property, said that with the settlement, "we look forward to filling our next generation lender-placed product as we continue to meet the needs of our clients and customers in New York with outstanding service and support."
Under the settlement, the department said, Assurant agreed not to issue policies on mortgage properties serviced by an affiliated bank or servicer and to make refunds to New Yorkers through a claims process with a third-party administrator to homeowners who defaulted on mortgages because of the insurance cost, were erroneously charged or were charged at a higher coverage limit than their mortgage permitted.
Lawsky said other insurers "need to step up" and institute similar reforms.