As just your average unemployed consumer...I'd like to present my notes from today's hearings on the legality of Force Placed Insurance as a product. I personally believe it should be a service and only be allowed a fixed rate for the process of procuring insurance for the borrower.
Anyway, here's some notes I paraphrased while watching today's hearing, in case it helps anyone:
Force Placed Insurance is handled entirely by the Force Placed Insurer.
Assurant – 1 – Safety net throughout the United States. He talks really fast, haha. We act on behalf of the mortgage servicer. 13% and 2% Refund rates. (**Refund for that period, but not for the prior term they backdated. It’s only prorated for a year. You’d have to have your insurance agent/company send the bank 3-5 years worth of policies in order to get a full refund.**)
QBE – 2 – QBE Insurance Corp/QBIC, QBE First 3000 employees, headquartered in Atlanta. He’s focusing on Hazard, and not mentioning Flood, Wind, and Auto. Acting on behalf of the Servicer.
(***$200,000 & $130,000 are the highest priced houses in QBE’s portfolio to “show off” having paid. The average house price in the use is $242,000.**)
DFS: 90% of New York LPI market.
Assurant: Growth from connection with the right clients at the right time (Borrowers in foreclosure).
QBE: High Performance Levels (undefined). 45% in New York.
(**Lawsky is AWESOME!! J Making them compete with insurance companies.**)
QBE: Minimum Loss Ratio so low because catastrophe exposed (**however they’re only exposed to 20% of the dollar**). We would need to readdress our business model.
(**Lawsky calls it a product, but it’s a service. They’re representing the bank and buying insurance for you. They’re just only buying their own insurance.**)
Assurant: Unrealized Losses. History has shown us, it’s always been this way, when the borrower leaves, (**i.e. foreclosed on, why else?**) there’s losses. (**This is REO Insurance, not LPI. They’re funding REO losses with LPI gains**)
QBE: Business tends to be in concentrations of people (**i.e condos**) on the coast (**i.e taller buildings**).
Reinsurance with limited market. Sophisticated models.
Assurant: 50 States. 55% from CAT-Prone States, 2004/2005 were challenging. New York
(**Much higher than the $200k and $135k tragic losses to rebuild he reported earlier.**)
Assurant: we pay dividends and these premiums are a part of it;
A website, call us (**in the name of your servicer, but to the insurance company’s website. Why can’t the borrower just submit their insurance on their bank website. Can you submit your Dec Page on your Bank of America website or Wells Fargo Website or Chase Website?**)
Shortcuts, Huge Spike
Assurant: - We’re Reactive (**not proactive**) Meeting Call Response Time Standards. I’d be happy to walk someone through the process to dispel myths.
QBE: I concur (**Should prove by providing servicer contracts**).
QBE First Accuracy & Error Rate: No, but “extremely high levels of accuracy in the high 90% range”
False Placement Rates are relatively low low 10-12% range
Assurant: Accuracy is track on almost every level. Each process is tracked with a different way of how to do it so the best way is through data reports. We can walk you through it. Exposure Process and lender placement process.
Assurant: How we can control false placement. It’s an after event based on the front end.
Flat Cancellation rates.
Change carriers don’t tell servicers. They mention the servicer. Mid teens for escrow/non-escrow
Joy: Who are they talking to?
Assurant: if it’s insurance based in response to a letter or in the client’s IVR are directed to us. (They can never talk to the mortgage company**). Escrow outside of their realm (**although they control the escrow payments, often inflating it**).
Joy: Does Assurant identify themselves as Assurant?
Assurant: It’s client driven. The expertise shouldn’t matter. I think sometimes we identify ourselves (**although ONLY to other insurance companies, not to borrowers, except through letters**). (**It also matters because borrowers can’t submit to the lender website**).
Ben: Why reinsure?
Assurant: Client Reinsurance, Market Reinsurance finances Catastrophe Reinsurance.
Joy: Actual loss ratios over the last 6 years?
Assurant: I don’t know.
Joy: Can you explain why you haven’t lowered the payments?
Assurant: Certainly, clearly you can tell in looking at the Loss Ratios. Driven by losses and premium. Premium has gone up. There is merit in reviewing. Understanding current conditions from a premium standpoint and unrealized loss for the future (**but what about the past?**)
Joy: Captive insurance.
Assurant: It’s an economic decision. The clients (**not borrowers**) want to do it. It makes sense.
Joy: Help me understand this arrangement aligns the servicer’s interest rather than the homeowners?
Assurant: Why would it be disparate?
Assurant: We don’t see it as an avenue to move profit to clients except the rate would be the same to the borrower either way.
Can’t disagree it’s worked out based on experience.
Joy: Thank you (**no, Joy….Thank YOU!!**)
Why would they pay commissions related to LPI?
Assurant: Over the years it’s been accepted and approved. It’s always been there.
Joy: Do they perform services for these commissions?
Assurant: It varies by servicer. There’s a number they perform. Short list:
Manage rating program
Lender property compliance
Review of all insurance documents
It’s an insurance product with improved commissions.
Joy: Commissions paid were equivalent to Insurance agents in voluntary homeowners market.
In terms of Force Placed and authority is placed on you, you don’t provide significant services.
Assurant: I’ll address it again, there’s a number of services. We watch ourselves.
The clients audit us.
Joy: Profit? Exhibit A
$305 million from 2006-2010
Dividends and profit $106 Million
How do you justify these profits in light of projecting a 5% profit.
Assurant: The experience has been better.
Joy: Does LPI contribute?
Assurant: That’s presumptive. I don’t know. I can tell you that uh, if you look at the property the amount of insurance on delinquent loans, most of that come after the loan is already delinquent.
Lion’s Share is put in after rather than before.
Joy: Document Retention Policy resulted in the destruction of emails related to this hearing?
Assurant: I don’t know what kind of documents were destructed. We require what we’re required to retain.
Joy: Has Assurant discussed LPI by email?
Assurant: I would assume so.
Joy: Since then, have you revisited doc retention?
Assurant: We have temporarily suspended the 45 day email procedure pending further dialogue.
Ben: Given your corporate development history:
Empire Fire and Marine created Force Placed Insurance Product in 1997.
The day to day operation of managing that product taken over by ZC Sterling.
In Dec 2008, QBE Insurance purchased ZC Sterling and changed to QBE First.
In 2009, QBE bought Empire Fire and Marine.
QBE: We did not take over their portfolio.
Ben: Ok, once you bought QBE, did ZC Sterling continue to operate the portfolio?
In 2009 they submitted a rate filing with the rates. The rates have never been challenged to date. There’s always a first time for something.
Let’s look at QBE rate filing.
QBE has no experience, it’s adopting Empire Fire and Marine program.
We’d like to see the confidentiality agreement.
27.5% commissions paid to own affiliate QBE First.
QBE First manages process, adjudicates the claims and losses.
Lower loss ratio, more QBE First makes from QBE.
Aspects include lump sum payments
Servicers have insurance agent affiliates and you pay commissions
Amsi 10-20% on premiums paid
Commissions are consistent with commissions paid to voluntary agents. What’s the difference between LPI agents vs a voluntary. Product shopping, etc.
QBE: I believe it is similar. You read a portion. I would suggest the stuff you suggest would be a similar venture.
Ben: Let’s talk about Balboa / Bank of America
Joy: Did Assurant pay GMAC?
Assurant: They’re not a client of ours.
Ben: Back to Balboa. They entered into an agreement with QBE that Is 100%. Balboa exists
And shifts to QBE, the public was $700 million paid by QBE to Bank of America (actually was only $700 million cash plus another $1.5 billion in assets).
Balboa is a very significant acquisition. It brought you from 3rd in line to 2nd in size.
There were other components. In particular, there was a 10 year agency agreement between QBE and Bank of America or Balboa?
QBE: I don’t know the signatories.
Ben: But Bank of America family companies including a commission that gets paid from QBE to the BofA folks for a period of 10 years. It’s been structured as net premiums. Speak into the mic.
In grappling with this, this creates an incentive to place further policies. They Service 20% of mortgages in the United States. There’s a correlation.
QBE: What’s important to understand is the process is blind to the individual or situation other than the fact that the process looks for lapses in insurance products.
Ben: Is there a relationship to the bottom line? That’s impersonal as well. I’m trying to get an understanding of a percent premium to Bank of America. 8 year relationship agreement as well.
That results in a payment from QBE to Bank of America based on volume. A half a billion dollars to Bank of America
QBE: We’d be happy to talk to the people involved.
Ben: What the public perception is there’s intended (**video cuts out**). Folks view this as inter related.
We’re trying to get an understanding of what the incentives are that control this.
Economically it has an enormous impact.
My last question, what’s the percentage of claims paid as a function of claims made?
100 claims filed, what does QBE pay on average?
QBE: We can try to do some research. Not that I’m aware of. Can we go back and research it?
**Tomorrow from 10 AM-5 PM
Chase’s servicer is refusing to show up.
Representatives from Bank of America, Bank of America Insurance, and Balboa will be present**