QBE Insurance Group Ltd. was fined $10 million, agreed to cut rates for some residential coverage and will provide customer refunds after a New York probe into kickbacks paid to banks.
The fine follows a $14 million penalty last month against Assurant Inc., the largest provider of so-called force-placed policies, the mandatory coverage for mortgage borrowers who lapse on insurance payments with their original carriers.
QBE, Australia’s largest insurer, and New York-based Assurant competed for business by offering a share of their profits to mortgage lenders, a probe by New York’s Department of Financial Services found. The insurers can be selected by banks, and premiums were as much as 10 times higher than for a policy picked by a homeowner, the regulator said.
“The kickbacks and payoffs in the force-placed insurance industry used to be a dirty little secret,” New York Governor Andrew Cuomo said yesterday in a statement announcing the fine. “Reforms that we’re putting in place will mean lower home insurance costs.”
QBE fell 2.1 percent to A$13.10 yesterday in Sydney. The shares have advanced 20 percent this year.
“QBE resolved this matter solely to put it behind them and to avoid additional cost and the continued diversion of management time and attention,” Andrew L. Sandler, chairman and executive partner at law firm BuckleySandler LLP in Washington who represented the insurer, said by phone.
QBE became the second-largest force-placed insurer in the U.S. and New York after its purchase of Balboa Insurance Co. from Bank of America Corp. in 2011. The Charlotte, North Carolina-based lender also signed the settlement with New York. Of the $10 million penalty, $4 million relates to QBE’s force-placed operations prior to the Balboa deal, according to a separate statement yesterday form the insurer.
The insurer recorded claims costs of less than 20 cents for every dollar of force-placed premium it collected in New York from 2009 to 2011, the regulators found. That’s “substantially below” the expected 55 cents per dollar expected from filings QBE made with the department, according to the statement.
The insurer is prohibited under the deal from paying commissions or turning over premium revenue through reinsurance contracts to banks or mortgages servicers. QBE agreed to file rates with the regulator based on claims costs of 62 cents per dollar. QBE will also be required to re-file its rates every three years and submit other data about its losses and expenses to regulators.
New York Superintendent of Financial Services Benjamin Lawsky said other states should adopt similar changes. Regulators in California and Florida have also been examining force-placed policies.