California Department of Insurance announces $20.6 rate reduction for homeowners

Lender-placed mortgage insurers to reduce homeowner premium rates

SACRAMENTO, CA – February 1, 2013 – (RealEstateRama) — Insurance Commissioner Dave Jones announced today a 35 percent rate reduction for lender-placed (also called force-placed) homeowner insurance coverage offered by QBE Insurance Corporation. The rate reduction will result in an estimated $19.4 million savings to QBE policyholders, with an average savings of $626 per policyholder annually.

“This is another victory and significant rate reduction for many California homeowners who have been subjected to these types of policies,” said Commissioner Jones. “With many Californians still facing economic uncertainty and underwater mortgages, these savings represent significant financial relief.

Force-placed insurance is controversial because, under certain circumstances, homeowners are forced to purchase the policies. These policies are primarily intended to protect the lender’s interest in the property and typically come with exorbitant costs that are often much higher than standard homeowners insurance policies.

The Department of Insurance received complaints from homeowners being forced into lender-placed policies at exorbitant prices. Commissioner Jones directed insurers to submit new rate filings. A subsequent review of those filings, confirmed that rates were indeed excessive and needed to be lowered. A second insurer, Great American Assurance Company, has also reduced its lender-placed insurance premiums by 28 percent in its Mortgage Protection Insurance Program. That reduction will save California policyholders $1.26 million annually.

Last October, Commissioner Jones announced a $42.7 million savings to homeowners by American Security Insurance Company (an Assurant Inc.-owned company). That premium reduction was 30.5 percent and translated to an average savings of $577 per policyholder in California. Following that announcement, another insurer, American Modern Home, reduced their lender-placed premium rates by 21.3 percent saving an additional $1 million for consumers. That reduction, which was tied to an earlier reduction of 10.5 percent by the insurer, saved individual policyholders $604 on average annually. These reductions follow the Commissioner’s efforts to protect California consumers from the high-costs related to force-placed insurance by lenders.

In March of last year, Commissioner Jones contacted the state’s largest “force-placed coverage” insurers to express his concerns about apparent excessive rates. He directed insurers to submit new rate filings with the California Department of Insurance (CDI) to determine if rates could be reduced. Force-placed insurance has been the subject of national scrutiny and investigative 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 excessive. Insurers were directed to provide a response to CDI by April 1, 2012. Today’s rate reductions are a result of the efforts taken by the Commissioner in early 2012.

“With an estimated 2012 gross written premium of $62.8 million, QBE and Great American Assurance are to be commended for being the third and fourth insurance companies respectively to lower their rates,” added Jones.

Media notes:

• QBE’s new rates will be implemented on March 15, 2013.
• The 2012 written gross premium is $58.58 million.
• These programs currently insure 30,940 California properties (as of December 31, 2012).
• The total in force premium for those properties is $55,381,069, which corresponds to $8.4 billion of coverage.
• The average annual premium per property insured is $1,790.
• This reductiontranslates into an annual average savings of $626 per policyholder.
• Great American Assurance Company’s 2012 written gross premium is $4.3 million.
• The company’s new rates will be implemented on March 1, 2013, and will apply to policies issued or renewed by the insurer. This reduction will benefit approximately 2,512 policyholders by saving them an average of $505 on their premiums annually.

Following are tips to homeowners with lender-placed insurance:

• If your insurer hasn’t renewed your homeowner’s policy because you didn’t pay your premium, you may be able to get your insurer to reinstate coverage if you bring your premium up to date;
• Try to get coverage with another insurer. Remember, it’s a very expensive policy which can make it harder for homeowners to avoid foreclosure by becoming current on their mortgage balances;
• The FAIR plan (http://www.cfpnet.com/) is also an option if you cannot find insurance in the private market;
• Call the Department of Insurance Consumer Hotline at 800-927-HELP (4357).