Key Talking Points from NY Department of Financial Services Investigations

Force Placed Insurance
Definition


When you have a mortgage or auto loan, you have a contractual requirement to carry certain insurance coverages. If you do not have the required insurance, the bank will purchase it on your behalf.

4 Types of Force-Placed Insurance:
Home (Flood)
Home (All Other Perils)
REO
Auto

2 Loan Types:
Escrow
Non-Escrow

Non Escrow Issue

Voluntary Insurance is $1000 for a $200k home. If your policy lapses or is determined insufficient, the bank forces coverage at $4000.

Conflict of Interest = Why not pay the $1000? Why are you paying the $4000?

The Banking Industry's answer is that it's because you're a higher risk factor because they haven't seen the house. The real answer is because when you pay $4000, the bank and insurance company each get to pocket $1600.

There is a kickback involved, but this is the financial sector. It's not easy to see unless you know the magician's tricks. The Loan Servicer has an obligation to the Investor to keep the servicing cost per loan as low as possible. They accomplish this by contracting the work to an Insurance Tracker.

The Insurance Tracker can keep servicing costs low because the bulk of their profit comes from Force Placed premiums.

Escrow Issue

You have a contractual agreement to add an escrow payment to your mortgage. For a $1200 annual policy, $100/month of your mortgage goes to an account for your Loan Servicer to pay your next year's insurance premium. The Loan Servicer doesn't do this work. They hire an Insurance Tracker to process all insurance transactions.

An Insurance Tracker (by definition of their business model) makes money for their stakeholders by Tracking Insurance. QBE (aka Balboa when it was owned by Bank of America until last summer) and Assurant act as the Insurance Tracker

QBE/Assurant also act as the Force Placed Insurer.

The Loan Servicer is now paying QBE/Assurant to decide whether or not you need QBE/Assurant's high priced policy

Claims Issue

In a claims situation, the Insurance Tracker acts as the Loan Servicer. They must serve the interest of the Loan Servicer, which is against the Insurance Company.

But remember…The Force Placed Insurer IS the Insurance Tracker. They are also the Insurance Company, and as such must serve the interest of their stakeholders and reduce claims payouts.

Lender Proccessor Services from the Robosigning scandal also maintains Insurance Tracking systems for most lenders LPS systems were originally FIS systems and are still maintained by Fidelity Information Systems.