New Questions about Banks' Force-Placed Insurance Deals

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It is not possible to evaluate how QBE's rates stack up against other insurers in Florida because its surplus-line status means it does not have to disclose such data. Given that servicers regularly receive a percentage commission on the policies, there is little financial incentive for banks to press for low prices or show restraint when issuing policies.

A review of a handful of QBE cases being litigated in Florida supports this view. In a second case involving Wells, documents show the bank imposed retroactive coverage on a borrower of $1,743 a month — more than the borrower's monthly principal and interest payment. Annualized, the premiums amounted to more than a quarter of the borrower's outstanding mortgage principal, a lawsuit filed by Jeffrey Golant, the Miami law firm Kozyak Tropin & Throckmorton and two other plaintiffs law firms alleges.

"We are confident that all of our vendors are operating in accord with applicable laws in each state," a spokeswoman for Wells told American Banker. The company said it buys force-placed policies from QBE only on the minority of loans it has purchased from correspondents, meaning that only borrowers whose mortgages were originated by other lenders can be force-placed with a carrier whose rates are not regulated. For the rest of Wells' portfolio, it partners with Assurant Specialty Property, which is subject to rate limits in all states.

In other instances, banks partnering with QBE have forced borrowers to pay for insurance in excess of their property's value. In one example, insurance notices show QBE forced a SunTrust Mortgage Inc. borrower to buy a $230,000 insurance policy — on a house that the Broward County, Fla., property appraiser lists as worth less than $82,000. Should the borrower eventually fail to pay QBE the $10,000 annual premium, the government will, in the form of losses to Fannie Mae, which guarantees the mortgage.

Margery Golant said the QBE insurance wasn't the first force-placed policy levied on the home in the above example, just the most expensive.

"She had force-placed coverage prior to QBE," Margery Golant said of the borrower. "But QBE was the most outrageous by a mile."

SunTrust declined to discuss its relationship with QBE or the cost of its insurance. Generally, "SunTrust takes appropriate steps necessary to protect the value of collateral consistent with our responsibilities to our shareholders and as required by our investor agreements," a spokesman said by email.

Others in the industry cautioned against jumping to the conclusion that all high prices were abusive. Reinsurance is not always available in hurricane-prone states, meaning that the insurer must charge high premiums to compensate for the exposure.

"You get on the coast, you can't find reinsurance. It does get kind of crazy," said Skip Davis, a senior vice president of Plateau Group, a firm that helps community banks acquire force-placed insurance for their portfolios. Most players in the market are judicious about imposing policies, he said, and the price of the insurance is rightly higher than for voluntary coverage, given the extra risks involved.

But Davis said that some of the QBE rates appeared to be remarkable, even for Florida. Regarding the $25,000 in retroactive premiums, "any halfway smart banker is going to say, [the borrower] can't afford that," he said.

QBE'S ADVANTAGE

QBE's sale of unregulated insurance in Florida is something of an oddity. State laws generally give preferential status to admitted carriers with regulated rates, and Florida statutes mandate that surplus coverage should only be purchased when coverage is "not procurable from authorized insurers." Insurance agents must document multiple "diligent efforts" to find a regulated carrier before venturing into the surplus-line market.

To someone outside the Florida industry, finding an admitted force-placed insurer wouldn't seem like a problem. Two large insurers, Assurant Specialty Property and Balboa Insurance Co., sell such coverage. Balboa, formerly owned by Bank of America Corp., is in the process of being purchased by QBE, a unit of QBE Insurance Group Ltd. of Australia, and declined to comment. But while Assurant is the largest operator in the Florida market, agents doing business with QBE aren't seeking Assurant out before placing new coverage, the company said.

"No, this does not happen," Assurant spokeswoman Shawn Kahle wrote to American Banker when asked if the company was regularly contacted by insurance agents making a diligent effort to find regulated insurance. "While we don't speculate or comment on competitors, at Assurant Specialty Property we believe being an 'admitted carrier' is the right approach to take if possible."

Wells said that it always buys rate regulated coverage when it is available, though QBE does not offer it in every state.

One possible reason why the agents buying QBE insurance might not be checking with QBE's competitors is that they appear to work for QBE.

Several notices of coverage viewed by American Banker all listed an employee for Sterling National Insurance Agency Inc., a QBE subsidiary, as both the basic "producing" agent and the surplus-line agent for the coverage. The agent, Michael Seminario, declined to speak with American Banker.

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