Consumer Advocate Fears for
Insurance of Troubled Homes
By: Gray Rohrer
The Florida Current
thinks “force-placed” or “lender-placed” insurance is impeding Florida’s
economic recovery and wants a national insurance group to tackle the issue.
She sent a letter Tuesday to the
Association of Insurance Commissioners
Mortgaged homes in Florida are required to have insurance. If a borrower does
not obtain, or opts out of property insurance coverage because of affordability
or other reasons, the bank or lender imposes a policy on the homeowner under the
terms of the mortgage. Lender-placed insurance typically only covers structural
damage, not personal property or liability.
In addition to the reduced coverage, Westcott thinks that because insurers pay
commissions to banks and service the lender-placed policies provided by the
banks it creates “reverse competition.”
“There really needs to be market conduct review or reporting requirements ... to
determine what is it that the insurance company is providing on behalf of the
bank,” Westcott said.
She also noted that Florida doesn't have a competitive
market for lender-placed insurance. The state has just
four companies writing such policies, accounting for 10
percent of the premium for personal and commercial
residential policies in the state.
The NAIC held a public meeting on lender-placed insurance
last week attended by its president,
Insurance Commissioner Kevin McCarty.
OIR, the agency McCarty heads, last week refused to grant
Praetorian Insurance Co
Florida’s drawn-out foreclosure crisis is exacerbating the
problem. The longer a homeowner struggles through the foreclosure process, the
longer a home carries reduced or limited coverage. That increases the
possibility that a catastrophe could wipe out not only a home, but the personal
property of homeowners who are already economically disadvantaged. Since 2007,
the length of the average foreclosure has increased from 169 days to 861 days,
according to an economic report released Thursday by the
Office of Economic and Demographic ResearchEven homeowners without troubled mortgages are winding up
with lender-placed policies, Westcott contends. Because of
Citizens Property Insurance Corp.’s
push to reduce its 1.4 million policies, reducing coverage and credits for wind
mitigation improvements through rigorous inspections, more homeowners with
coverage from the state-run “insurer of last resort” are being bumped to the
last-ditch safety net of lender-placed insurance.
“I think that Citizens can still be in many ways an insurer of last resort,”
But because it has a cap of 10 percent on annual rate increases set by the
Legislature, Citizens can’t simply increase its rates when it adjusts coverage.
“I think that there is a pressure point there for Citizens because they can’t
capture the rate another residual market would capture,” Westcott said.
A spokeswoman for Citizens they hope to work with Westcott to allay any concerns
over customers being pushed into lender-placed insurance, but said the issue is
evidence of the "balancing act" role the state-run insurer must play in
Florida's unique marketplace."This is a real concern and I think it shows the delicate balancing act that
Citizens has here in Florida," said Citizens spokeswoman Christine Ashburn.