Florida regulators will question executives of Praetorian Insurance Co. and two insurers that want Praetorian to take over their force-placed insurance policies this week.
Controversy is brewing over force-placed policies — those imposed by lenders on homeowners whose insurance has lapsed or expired — because the policies often are sold by surplus lines insurers, companies with unregulated rates, or by insurers with financial ties to lenders so prices are often much higher. Some homeowners with force-placed policies have said they weren't warned that their policies expired or they already had coverage while they were being charged for force-placed policies.
The policies are meant to protect banks against possible losses on homes they've lent money for.
Praetorian wants a rate decrease of 2.2 percent but the "change is not uniform and some areas are subject to higher rates," according to a statement from the Office of Insurance Regulation.
QBE Specialty Insurance Co., a surplus lines company, and its regulated affiliate, Balboa Insurance Co., are moving their force-placed policies into Praetorian partly because of new requirements by Fannie Mae for its loans that exclude the unregulated surplus lines insurers from selling force-placed coverage. The companies have about 115,000 force-placed policies statewide, according to the rate proposal.
QBE's rates are 10.5 percent higher than Balboa's and Praetorian would use the lower rates, according to the rate proposal.
In its statement, the insurance regulation office said it regularly reviews rate filings for regulated insurers with force-placed coverage, unlike states where rate filings haven't been reviewed in years. In 2009, the office scrutinized rates for the two largest insurers selling force-placed coverage.
Florida Insurance Commissioner Kevin McCarty, who is president of the National Association of Insurance Commissioners, announced this week that the group will conduct a hearing on Aug. 9 in Atlanta about force-placed coverage.
New York regulators held hearings this year on force-placed insurance with testimony from QBE and Balboa and the new Consumer Financial Protection Bureau plans to propose regulations on the coverage.
South Floridians Joseph Gallagher and Donald and Joan Novell filed suit this week over the coverage. The suit, filed in the U.S. District Court's Southern District of Florida, alleges Bank of America, its subsidiary and a former subsidiary, Balboa, received a "financial windfall … as a result of the kickbacks, commissions, improper charges, and various reinsurance schemes" involving force-placed insurance.
A spokesman from Bank of America said the company doesn't comment on pending lawsuits and a QBE spokeswoman said she could not comment by the newspaper's deadline. In written testimony to New York regulators, Balboa said force-placed coverage is typically more expensive because risks aren't accepted based on individual homes. "Balboa must insure all properties within a servicer's portfolio, regardless of the location, condition, age, or risk of loss of such properties, or any other … factor that a voluntary insurance underwriter typically considers in determining how to price or even accept certain risks," John Meadows, a QBE FIRST executive, wrote on behalf of Balboa.
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Watch the hearing
The Praetorian hearing is at 9 a.m. Tuesday and can be viewed live online at the Florida Channel's website, thefloridachannel.org.