July 05--Why are prices for force-placed policies often much higher than regular home insurance rates -- even though the insurers don't have to pay costs associated with attracting and keeping policyholders?

That was one of the questions consumer advocates and regulators asked on Tuesday at an Office of Insurance Regulation rate hearing for Praetorian Insurance Co.

An insurance company official said force-placed policies -- those imposed by lenders on homeowners who don't have coverage -- can cost more because the policies must accept all risks, including vacant properties that are more likely to be burglarized. In addition, insurers can't determine if the properties would qualify for lower prices because of stronger construction or hurricane-proofing features.

In its proposal, Praetorian said it expects higher claims costs and greater regulatory and market uncertainty. So it asked for a 2.2 percent decrease instead of the 15 percent drop indicated by its proposal.

But the claims costs were questioned. Bob Lee, an actuary for the insurance regulation office, asked why the most recent non-catastrophe claims data from the company is from June 2011. Florida Insurance Consumer Advocate Robin Westcott noted the roughly $550 in average projected non-catastrophe losses per policy used in the rate request is much higher than the $100 to $200 reported since 2007.

Birny Birnbaum, executive director of the Center for Economic Justice, said the expenses should be lower since force-placed policies cover less. He said Preatorian's overhead expenses -- 29 percent -- should be lower than the 23 percent and 18 percent charged on average, respectively, by Florida home and fire insurers.

The Consumer Federation of America said Praetorian should decrease rates by 44 percent.

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