HSBS accepted compensation tied to Force-Placed insurance policies
Attorney General Maura Healey announced this week that it has entered into an assurance of discontinuance with the national mortgage lender HSBC. The mortgage servicer has agreed to pay $2.675 million in restitution to affected Massachusetts Homeowners in connection with allegations that it had received commissions and other “kickbacks” relating to force-placed insurance policies it had procured for Mass. homeowners.
“Mortgage servicers should not enrich themselves through insurance products at the expense of struggling homeowners,” AG Healey said. “This agreement ensures that HSBC returns the money to Massachusetts consumers it received in violation of state laws.”
In addition to the $2.675 million in restitution, HSBC will also pay the Commonwealth an additional $1.4 million. As part of the negotiated settlement, HSBC has agreed to reject future commissions, profit-sharing or reinsurance proceeds resulting from any free or below market services from insurance carriers writing force-placed insurance policies in Massachusetts.
The second force-place insurance settlement in four months
Force-placed insurance is issued in those instances in which mortgage services believe homeowners have failed to maintain adequate homeowners’ insurance on their own. These insurance policies issued typically have premiums that can be as much as two-to-three times as expensive as voluntary insurance, in addition to providing much more limited coverage.
Relying on force-placed insurance companies to monitor its borrowers, HSBC actually received compensation tied to the amount of force-placed insurance premiums that were charged to its borrowers. The mortgage lender received such incentives and compensation until June 1, 2012.
The Attorney General alleged that such compensation created an improper conflict of interest between the two companies in addition to violation state consumer protection laws. According to the AG’s office, an affiliate of HSBC was paid commissions by the insurance company Assurant, Inc. Apparently, the company was paid for the sale of force-placed insurance policies even though the HSBC affiliate did not perform any of the traditional functions of an insurance agent.
In addition, the AG noted that HSBC also participated in Assurant’s quota-share reinsurance program, permitting the mortgage lender to share in Assurant’s profits from its “highly lucrative force-placed insurance business.”
This is the second settlement involving force-placed insurance policies in the past four months. In November 2015, the Attorney General settled with the American Security Insurance Company, also a subsidiary of Assurant. In that case, American Security agreed to refund Mass. homeowners for premiums that they were required to purchase force-placed insurance policies either unnecessarily or at a highly inflated price.
