Four months after Florida's insurance regulator rejected its prices as excessive, force-placed insurer QBE has offered to reduce its rates in the state by 19%. A portion of the cuts would come from reducing the commissions QBE pays to banks.
The move by QBE's Praetorian subsidiary comes amid broader controversy over how banks buy force-placed coverage, which is supposed to protect mortgage investors by insuring delinquent homeowners' properties against hazards.
Consumer advocates and mortgage bond investors, including Fannie Mae, have alleged that banks and insurers grossly inflate the cost of such policies, overcharging struggling homeowners and investors by hundreds of millions of dollars.
Amid such scrutiny, insurance officials in New York, California, and Florida have pressed insurers on their rates and the justification for paying commissions to major banks, which typically are not involved in the day-to-day business of force-placing policies. In August, Florida Insurance commissioner Kevin McCarty said that the state was probing the expense of force-placed premiums and the relationships between insurers and the banks that send them business.
The proposed Praetorian rate reduction would save consumers $98 million a year, based on QBE's current Florida revenues of $521 million. QBE is the second largest force-placed insurer, trailing Assurant in a nationwide market estimated at $5 billion in premiums year.
Banks that send QBE their business would feel some of the insurer's pain on the rate cut. QBE initially proposed paying a 15% commission to its bank clients. But the insurer has lowered that rate to 11% in its new filing.
Major mortgage servicers have long collected commissions on force-placed policies, even though insurers handle every step of the process, from detecting borrowers who lack insurance to handling claims.
Amid regulatory scrutiny, some sizable banks have repudiated such payments. Wells Fargo, a former QBE client, told American Banker in October that it ceased accepting commissions shortly before it replaced QBE with Assurant earlier this year.
Whether QBE's concessions will be enough to win Florida's approval is not immediately clear. Compared to the 30.5% rate cut recently imposed on rival Assurant by California insurance regulators and a 30% to 40% premium reduction being pursued by Fannie Mae, the proposed QBE premium cuts are relatively modest. Consumer advocates like Robert Hunter — a former Texas insurance commissioner who has been cited by Florida's McCarty as influential on force-placed topics — have argued that insurers could slash their rates in half and still earn a sustainable profit.
In August, shortly after the state's insurance commission rejected its rates, QBE chief executive John Neal told stock analysts that the company intended to "begin negotiations" with the state to ensure that its next proposal would be filed "on an agreed basis."
"We're not looking for the refiling to be rejected a second time because that puts you into a legal process that neither party would want," Neal said.
Asked whether Praetorian's second rate filing had already been cleared with the state, a spokeswoman for Florida's office of Insurance Regulation said it hadn't.
"We have not been in 'negotiations' with Praetorian. However, there were numerous discussions with the company on what information needed to be provided in their filing," spokeswoman Amy Bogner wrote in an email. "This filing is pending further review by the Office."
In the event that the rates are approved, QBE would be required to seek approval for its rates again after a year.
A spokeswoman for QBE declined to address questions about its filing, writing in an email that it was not company policy to discuss open regulatory matters.
Florida is also asking Assurant to submit new rates. McCarty said in August that the insurer would refile within 60 days, but the company has not produced a public proposal yet.