Approximately 2,100 homeowners will receive refunds from QBE
A September 10, 2018 settlement between global insurer QBE and the Massachusetts Attorney General’s office, will require QBE to refund Massachusetts homeowners improperly charged for homowners’ insurance.
“QBE charged Massachusetts homeowners for expensive and duplicative coverage that they did not need,” said AG Healey. “This agreement will provide refunds to thousands homeowners.”
An audit conducted by the Attorney General’s office, reviewed QBE covered policies during the years 2008 through 2015 for signs of force-placed insurance practices. As a result of that audit, QBE has agreed to refund approximately 2,100 affected homeowners a total of $2.4 million.
Force-placed insurance is property insurance taken out by a mortgage lender to protect a home when homeowner do not maintain property insurance as required by the mortgage agreement. When a borrower is believed to have failed to maintain appropriate coverage, the insurer issues a force-placed insurance policy and the mortgage servicer charges the premium for the policy to the borrower.
The AG says that force-placed premiums, however, tend to be “two to three times as expensive ” than typical homeowner insurance premiums. While more expensive, these force-placed policies also provide more limited coverage than a typical homeowners policy. There are also potential conflicts of interest with some force-placed insurance, notes the AG, due to the fact that some mortgage lenders accept commissions from certain force-place insurers.
In explaining how it determined which homeowner’s were affected, the AG explained,
Although force-placed insurance is only intended for circumstances in which the borrower has failed to adequately insure the mortgaged property, the Attorney General’s audit of QBE found more than 2,100 of cases of duplicative insurance coverage for Massachusetts homeowners. Borrowers eligible for settlement money were previously required by their mortgage servicer to purchase force-placed insurance from QBE or were overcharged for force-placed insurance because they were mistakenly sold commercial policies rather than less expensive residential policies.
The average settlement for each affected homeowner is expected to be $1,100. The AG noted that QBE fully cooperated with the audit.
This audit stemmed from the AG’s 2016 settlement with QBE
The audit conducted by the Attorney General was part of the agreement it had entered into with QBE in 2016.
Under the terms of the assurance of discontinuance signed by QBE Insurance and filed with the Suffolk Superior Court, QBE Insurance had agreed to pay refunds to Massachusetts homeowners whose mortgage lenders wrongly force-placed the consumers with QBE despite the fact that the consumers already had home insurance with other companies, as well as consumers who were overcharged by QBE because their homes were misclassified as commercial properties.
As a result of the additional $2.4 million in refunds, QBE will have paid a total of $2,775,000 in restitution. This amounts includes the $375,000 that QBE had previously agreed to pay the Commonwealth in the 2016 Assurance of Discontinuance.
Force-placed carriers charged higher premiums to homeowners to pay kickbacks to banks and mortgage service companies
A 2011 investigation by the New York Department of Financial Services revealed that the premiums charged to homeowners for force-placed insurance were two to ten times higher than premiums for voluntary insurance — despite the fact that force-placed insurance provides less protection for homeowners than voluntary insurance.
This same investigation gave the reason for these obscenely high rates as “reverse competition.”
According to the report, force-placed insurers vied with each other to pay mortgage companies and banks holding a consumers’ mortgage, commissions and reinsurance participation in the force-placed writings arising out of their loan portfolios.
Normal competition to provide the lowest price to the homeowners paying the force-placed insurance premiums disappeared as the insurers sought to buy the business through a share of the profits from force-placed insurance. These profit-sharing arrangements created incentives for banks and mortgage servicers to buy the highest-priced force-placed policies to get greater commissions at the expense of the unfortunate homeowners who had to pay up if they did not want the mortgage company or bank to foreclose.
These inflated rates generated large profits. For example, QBE filed rates with New York’s Department of Financial Services showing an expected loss ratio of 55 percent. The actual loss ratios for the three years prior to 2013 were 18.2 percent, 18 .5 percent, and 13.5 percent.
QBE Insurance Group paid $700 million for force-placed insurer in 2011 and sold it out in 2015 for $90 million: writing off $120 million
In 2011 QBE Insurance Group (“QBE”), one of the world’s top 20 general insurance and reinsurance companies, headquartered in Australia, purchased from Bank of America Corporation the Balboa Insurance Company’s force-placed insurance portfolio and rolled it into QBE Insurance.
QBE paid Bank of America $700 million upfront for the $1.2 billion Balboa Insurance portfolio it acquired.
As a result of the purchase, QBE Insurance became the second largest force-placed insurance insurer in the United States. Almost immediately the company picked up problems as in 2013, the New York Financial Services Department fined QBE Insurance $10 million after its probe of kickbacks the insurer had paid to banks in exchange for business.
Additionally, QBE Insurance became the target of class action suits arising out of the questionable dealings between mortgage services, banks and forced-placed insurers regarding commissions, fees and reinsurance transactions that jacked up forced-placed insurance rates to extremely high levels. The settlements of on class actions totaled $228 million.
In November 2015 the QBE Insurance Group exited the forced-placed insurance business by selling QBE Insurance and QBE First to National General Holdings Corporations for $90 million. The transaction resulted in a pretax loss of $120 million to the QBE Insurance Group for charges and write-offs.
Federal Agency clipped $150 million on force-placed insurance
It is not just consumers, however, that were fleeced by forced-place insurance practices.
The Federal Housing Finance Agency (FHFA), is the federal agency appointed in 2008 as the conservator of federally chartered Federal National Mortgage Association (Fannie Mae) and of Federal Home Loan Mortgage Corporation (Freddie Mac) that went bust in 2008.
A June 25, 2014 report by the FHFA’s Office of the Inspector General made the unequivocal recommendation that the agency sue mortgage servicing companies that dealt with Fannie Mae and Freddie Mac for overcharges on force-placed insurance placement in excess of $150 million. Fannie Mae and Freddie Mac had overpaid that amount, according to the report, under their mortgage servicing contracts when foreclosed homeowners could not pay exorbitant force-placed insurance premiums, Fannie Mae and Freddie Mac had the obligation to pay the force-placed insurance premiums.
Because of these abuses, the FHFA banned banks and mortgage servicers in June, 2014 from accepting commissions on force-placed insurance policies issued by affiliated companies.