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Consumer Advocate Fears for Insurance of Troubled Homes
By: Gray Rohrer
The Florida Current

Insurance Consumer Advocate Robin Westcott
  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
National Association of Insurance Commissioners asking for greater transparency in the little-known market.

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.

“There are simply not that many players in the marketplace,” said
Office of Insurance Regulation spokesman Jack McDermott.

The NAIC held a public meeting on lender-placed insurance last week attended by its president, Florida Insurance Commissioner Kevin McCarty. OIR, the agency McCarty heads, last week refused to grant Praetorian Insurance Co.’s request for a 2.2 percent reduction in lender-placed premiums, stating their analysis showed that a 35 to 36 percent reduction in rates is warranted.  

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 Research.

Even 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,” Westcott said.

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.