Gov. Andrew M. Cuomo speaks during a news conference at...

Gov. Andrew M. Cuomo speaks during a news conference at the Capitol. (March 20, 2013) Credit: Mike Groll

An insurance company settled New York State allegations that it charged homeowners "unfair and unnecessary costs" and agreed to pay a $14-million civil penalty.

In the settlement announced Thursday, the company, Manhattan-based Assurant Inc., also agreed to change its rate structure for so-called force-placed insurance policies and to refund some homeowners.

"The force-placed insurance industry has for too long been plagued by an intricate web of relationships between insurers and banks that pushed distressed families over the foreclosure cliff," Gov. Andrew M. Cuomo said.

Force-placed insurance is a product that many homeowners will never encounter. Home borrowers take out insurance to protect their property, but the lender has an interest in making sure the house is protected as well. If a homeowner stops paying for insurance -- often due to financial difficulties including foreclosure -- the lender will take out a policy and charge the borrower.

The state Department of Financial Services said that these forced policies can be two to 10 times more expensive than ordinary, voluntary homeowner's insurance, even though they offer less coverage. Voluntary homeowner's insurance pays out an average 63 cents in claims for every dollar collected in premiums. According to the department, one of Assurant's subsidiaries paid out as little as 17.3 cents on the dollar in 2008. The settlement requires the company to charge rates that more closely resemble voluntary homeowner's insurance.

The state said that Assurant engaged in practices that the department called "reverse competition" in which it effectively shared profits with banks and mortgage servicers rather than offering its product at the lowest price.

Benjamin Lawsky, superintendent of Financial Services, said those practices drove premiums "sky high."

In settling, the company neither admitted nor denied wrongdoing.

Assurant spokeswoman Shawn Kahle disagreed with the state's characterization that there was a conflict of interest in its activities.

"We do not believe that the relationships that we have historically had with our clients, mortgage servicers, have created anything that would be perceived to be inappropriate," Kahle said. "We recognize that in the state of New York they would like the procedures to be different, and we have agreed that we will follow those procedures and those regulations when they're put in place."

Assurant agreed to change those practices when the state institutes new regulations that apply to all insurers.

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