“Force-Placed” Regulations for California

November 2, 2012 by Gregory J. Brod

Unless you work in insurance law or the insurance field, you may not know what “force-placed” insurance is. Force-placed insurance, sometimes called “lender placed”, is when a lender or creditor takes out insurance on an asset that doesn’t have insurance, and the costs of the insurance are passed on to the customer, hence why it is “forced”. This method is most commonly used on vehicles and houses. So when a person buys a car or a house with a mortgage or a loan, the creditor, usually a bank, requires that the buyer carry insurance on that property. If the buyer doesn’t get his or her own insurance, the creditor obtains insurance to protect their investment.

Now, according to the Insurance Journal, California Insurance Commissioner, Dave Jones, is considering new regulations for these force-placed insurance policies, specifically whether it should be filed as a specialty line or a commodity. Mr. Jones said, “The Department is also contemplating regulations that would require all insurers that write lender placed property insurance to file the rates as a commodity rather than as a specialty line.” Traditional homeowners and automobile insurance already have to be filed as commodities. Filing as a commodity restricts the insurer’s ability to deviate from the standard rate approval process. This past March, the Commissioner contacted the ten largest forced-placed insurance providers in California and asked them to submit new rate filings. Upon closer inspection, the Department found signs of excessive rates charged by some insurers.

Armand Feliciano, vice president of the Association of California Insurance Companies and Property Casualty Insurers Association of America, is wary of the potential new regulations. He also disputes the term “force-placed” insurance. He says insurance is necessary to protect a bank’s assets, and that those concerned with the practice should be looking at banks and not the insurance companies for solutions. “When you say ‘forced,’ did they not sign a contract?” Mr. Feliciano pointed out. “If you’re going to lend someone $500,000, you’re going to want some assurances. Obviously [Commissioner Jones] can’t regulate the banks. But he should talk to the banks. The banks tell us what to cover.”

Force-placed insurance has gotten more attention in recent years because of the foreclosure and mortgage crises. Mr. Jones said several homeowners have complained to the Department that their force-placed insurance costs more than the insurance they would have gotten themselves. He said, “Recent investigative reports detail the lack of arm’s length transactions between lenders and insurers and, in some cases, a financial relationship between lender and insurer, which means the insurer is able to charge a higher price than would otherwise be the case.”

San Francisco Insurance Attorneys
If you feel like you have been cheated or treated unfairly by your insurance company, contact a California insurance attorney in your for assistance. Insurance companies often use consumer’s ignorance against them to try to deny benefits or force them to agree to certain things, and an insurance attorney can help you to understand your rights and get what you deserve.

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