Minnesota Commerce Department Cracks Down on Insurer for Overcharging Homeowners

ST. PAUL, Minn., Jan. 31 -- The Minnesota Department of Commerce issued the following news release:

Minnesota Commerce Commissioner Mike Rothman announced that an investigation by his agency has resulted in a settlement with Assurant Group, the nation's largest provider of "force-placed" homeowners insurance, over allegations that the company had improper financial arrangements with lenders and mortgage servicers that led to overpriced insurance for homeowners.

Under the settlement, the company is required to provide refunds to Minnesotans, lower its rates by 55 percent going forward, reform its business practices and make a $5 million settlement payment to the State of Minnesota.

Over the next 10 years, the new rates are expected to result in total savings of $40-50 million for Minnesotans with force-placed insurance through Assurant. For $160,000 in coverage, a homeowner's annual premium would decrease by nearly $850.

"The Commerce Department investigation found that Minnesota homeowners paid hidden exorbitant costs because of Assurant's unfair anti-consumer insurance practices," said Rothman, whose agency regulates the insurance industry. "This settlement will provide refunds to Minnesotans who were overcharged in the past, while protecting consumers against unfair and costly insurance practices in the future."

The settlement covers Assurant force-placed insurance policies issued or active in Minnesota at any time from January 1, 2008, to December 28, 2016. Under the settlement, certain Minnesota homeowners who were overcharged or improperly charged for force-placed insurance will have the right to submit a refund claim. A notice with claim form will be mailed to eligible Minnesotans.

The Commerce Department settlement addresses the Assurant Group's operating companies, which include American Security Insurance Company (ASIC) and Standard Guaranty Insurance Company (SGIC). These companies have provided more than 70 percent of force-placed insurance in Minnesota, affecting an estimated 45,000 homeowners.

Rothman said the enforcement action against Assurant is part of a broader Commerce Department investigation of business practices and rates for force-placed homeowners insurance. Last year, the agency reached a settlement with American Modern Insurance Group that included refunds to Minnesota homeowners, a 43 percent rate reduction and a $1 million fine.

Force-placed coverage is obtained by a lender or mortgage servicer, at a homeowner's expense, when the homeowner's own insurance lapses, is canceled or is deemed inadequate.

Force-placed policies have been significantly more expensive than voluntary homeowners insurance while providing less coverage. For example, force-placed insurance typically does not cover the homeowner's personal property or third-party liability.

According to the Commerce Department, Assurant charged excessive rates in a non-competitive market for force-placed insurance, with premiums that were high in relation to claims costs.

For example, a loss ratio measures the premium revenue collected by an insurer versus the claims it pays. Assurant's annual loss ratio on force-placed policies averaged only about 25 percent, compared to about 79 percent that is typical in the industry for voluntary homeowners insurance.

According to the Commerce Department, Assurant also paid improper commissions and rebates to lenders and mortgage servicers, and it entered into captive profit-sharing reinsurance deals with affiliates of the lenders and servicers. These arrangements created incentives for lenders and servicers to obtain force-placed insurance with inflated premiums that homeowners had to pay.

Under the Commerce Department settlement, Assurant must cease and desist from engaging in these anti-consumer practices and is not allowed to charge excessive rates.

Commerce is here to help

If you have a question or concern about insurance, contact the Commerce Department's Consumer Services Center by email at consumer.protection@state.mn.us or by phone at 651-539-1600 or 800-657-3602 (Greater Minnesota).

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