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CA Department of Insurance

CDI Announces $1 Million Rate Reduction For Policyholders Of "Force-Placed" Mortgage Insurance

News: 2012 Press Release

For Release: November 11, 2012
Media Calls Only: 916-492-3566
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CDI Announces $1 Million Rate Reduction For Policyholders Of "Force-Placed" Mortgage Insurance
Commissioner Urges Consumers Not to Let Homeowners Insurance Lapse

SACRAMENTO - Insurance Commissioner Dave Jones today announced a 21.3 percent or $1 million rate reduction for "force-placed "(also called lender-placed) homeowners insurance coverage offered by American Modern Home Insurance Company. When coupled with a 10.5 percent rate reduction earlier this year, consumers will save an average of $604 on their annual premium. American Modern Home is the second company to lower its rates after Commissioner Jones expressed concerns about apparent excessive premiums. In October American Security Insurance Company (an Assurant Inc.-owned company) reduced rates by more than 30 percent, creating a total savings between the two companies of $43.7 million.

Force-placed insurance is controversial because in certain situations homeowners are forced to purchase it. It's primarily intended to protect the lender's interest in the property if homeowners allow their insurance to lapse. Lenders bill homeowners for the premiums, which cost far more than policies that are purchased voluntarily.

"In addition to being very expensive, force-placed policies are typically much more limiting than standard policies," said Commissioner Jones. "At a time when many Californians continue to face difficult economic times, including mortgages that are under-water, this is a significant rate reduction."

In March, Commissioner Jones contacted the state's largest "lender-placed coverage" insurers directing them to submit new filings to determine if rates could be reduced. Force-placed insurance has faced national scrutiny and investigatory hearings in New York and Florida, as well as at the annual meeting of the National Association of Insurance Commissioners (NAIC). At the Commissioner's direction, CDI carefully examined the insurers' annual financial statement data and found many cases of low loss ratios. The low loss ratios (the percentage of every premium dollar an insurer spends on actual claims) were a flag to Department officials that rates charged by insurers may be too high. Insurers were directed to provide a response to CDI by April 1, 2012.

Commissioner warns homeowners not to let insurance lapse

"I urge homeowners to do everything they can to keep up their payments in order protect their primary asset," said Commissioner Jones. "My Department has received complaints from homeowners being forced into lender-placed policies at excessive prices without their knowledge. Don't let your lender force you into force-placed insurance."

The Commissioner urges homeowners to contact CDI if they believe they were unfairly placed into this type of policy. CDI recently helped a homeowner who was refinancing his home and learned that his lender had force-placed a policy for the previous full year's term, though the homeowner already had a policy in place. The premium for the annual term was $4,946 and when the erroneous charge was detected, a renewal policy was already in place for an additional $4,946. However, once CDI questioned the insurer providing the force-placed policy about its action, the carrier issued a refund of the entire amount. The refund covered, not only the previous term, but the partial year that was also assessed. This led to a combined recovery of $9,892 for the homeowner.

Since taking office in January 2011, Commissioner Jones has saved California consumers nearly $600 million in annual premiums for auto, home and business insurance.

The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.

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