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Assurant to pay $14 million to settle

insurance probe

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Jin Lee/Bloomberg

New York Superintendent of Financial Services Benjamin Lawsky: "Improper practices created
significant conflicts of interest and saddled homeowners, taxpayers, and investors with millions
of dollars in unfair and unnecessary costs."

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Staff New York Business Journal

Assurant Inc. has reached a settlement over a New York state investigation of its force-placed
insurance policies that will require the company pay a $14 million penalty and refund some
homeowner premiums.

The New York State Department of Financial Services has been looking into the force-placed
insurance industry, in which lenders buy coverage from an insurance company when a
homeowner fails to maintain insurance required by the mortgage.

Our investigation found that insurers and banks built a network of troubling relationships and
payoffs that helped drive premiums sky high, Superintendent of Financial Services Benjamin
M. Lawsky said in a statement. Those improper practices created significant conflicts of interest
and saddled homeowners, taxpayers, and investors with millions of dollars in unfair and
unnecessary costs. This settlement includes major reforms that will put a stop to those practices
at Assurant, provide restitution to homeowners who were harmed, and save millions of dollars
for homeowners, taxpayers, and investors going forward through lower rates.

The DFS said New York-based Assurant (NYSE: AIZ), the country's largest force-placed insurer,
competed for business from the banks and mortgage servicers through what is known as reverse
competition. That is, rather than competing by offering lower prices, the insurers competed by
offering what is effectively a share in the profits. This profit sharing pushed up the price of force-
placed insurance by creating incentives for banks and mortgage servicers to buy force-placed
insurance with high premiums, DFS said.

As part of its settlement, in which Assurant did not admit or deny wrongdoing, the company will
lower the cost of force-placed insurance for all non-flood business and file its premium rates for
review with the DFS every three years.

Assurant also will refund homeowners who were force-placed after Jan. 1, 2008 and meet
eligibility criteria. The settlement also bans Assurant from paying commissions to a bank or a
mortgage servicer for generating force-placed insurance policies.

The agreement also covers subsidiaries American Security Insurance Co. and American Bankers
Insurance Co. of Florida.