Homeowners in distress would get new protections against having high-priced insurance placed on their properties, under a proposal announced Thursday by state officials.
The state Department of Financial Services has proposed an overhaul of the insurance that mortgage lenders can place on properties if homeowners' property insurance lapses. The coverage, known as force-placed insurance, can be two to 10 times more expensive than the insurance that homeowners normally purchase, and it offers less coverage, state officials said.
In some cases, insurance lapses are due to homeowners' financial hardship, and the cost of force-placed insurance makes matters worse, according to housing counselors. In other cases, force-placed insurance is imposed by mistake, even though a homeowner's insurance is current.
The proposed new regulations are "long overdue," said Marianne Garvin, chief executive of the Community Development Corp. of Long Island. "You have to have insurance on property, but it needs to be at a reasonable rate."
Under the plan, insurers would face new restrictions on doing business with affiliated lenders, among other changes. The measure also would compel insurers to lower rates if their losses on such policies fall below a certain level.
An investigation by the Department of Financial Services "uncovered a kickback culture in this industry," Benjamin Lawsky, the agency's superintendent, said in a statement. The agency reached a settlement earlier this year with several force-placed insurers.
After a 45-day public comment period, the state agency will consider adopting the new regulations.
"This type of insurance is used in rare circumstances," Ellen Melchionni, president of the New York Insurance Association, which represents the state's property and casualty insurers, said in a statement. State officials, she said, "have taken significant steps to address the specific problems that were in place."