Unfair practices used by insurance companies to increase premiums & minimize payouts

Forced Place Insurance

Inflated Property Values; Excessive Rates

U.S. Takes Aim at 'Forced' Insurance

From article by Alan Zibel & Leslie Scism in 11/5/2013 WSJ
Read complete article

The FHA is pushing ahead with a ban on fees for 'forced-placed' insurance policies - expensive coverage that is thrust upon borrowers whose regular homeowners' policy has lapsed.

The FHA is expected to ban two forms of compensation from insurers to banks that collect borrowers' payments on home loans: sales commissions for placing coverage with particular insurers and reinsurance relationships in which the bank or or mortgage servicer is paid for taking on a portion of the insurance risk.

Posted 11/6/2013


Because almost all voluntary flood insurance is provided by the NFIP and because NFIP coverage is capped at a maximum amount of $250,000 for a resident ial structure, FPIF coverage is force-placed not only when a borrower is required to maintain flood insurance and has no flood coverage, but is also force-placed when the borrower has insufficient voluntary flood coverage in place. When a borrower has purchased a voluntary flood insurance policy, but the coverage provided by that policy is less than the amount of coverage required by the servicer, the servicer will force-place FPIF in the amount of the difference between the required amount of flood coverage and the amount of voluntary flood coverage.

When a mortgagee or a mortgage-servicing company discovers, at any time following loan origination, that there is no evidence of flood insurance on a property in a Special Flood Hazard Area (SFHA), then the Mortgage Portfolio Protection Program (MPPP) may be used by such lender/servicer to obtain (force-place) the required flood insurance coverage. The MPPP process can be accomplished with limited underwriting information and with special flood insurance rates.

MPPP rates are far higher than voluntary NFIP flood insurance rates.
MPPP rates are six times greater than voluntary NFIP rates for some rate categories.

If you are outraged by these practices, come to the next HHII meeting near you and join in their effort to bring fairness to the insurance marketplace.

U.S. Cracks Down on 'Forced' Insurance

From 3/26/2013 report by Alan Zibel & Leslie Scism in WSJ

The Federal Housing Finance Agency, which regulates mortgage giants Fannie Mae and Freddie Mac, plans to file a notice Tuesday (3/26/2013) to ban lucrative commissions paid by insurers to banks on so-called forced-placed insurance.

The housing agency's move would apply nationwide to all mortgages guaranteed or owned by Fannie and Freddie.

Forced policies have boomed as many coastal residents struggled to pay escalating property insurance premiums on top of their mortgage payments.  Some borrowers tried to save money by dropping the original standard coverage, only to be hit by policies placed by the mortgage holder with premiums that are typically at lest twice as expensive as voluntary insurance, and sometimes cost as much as 10 times more.

Consumer advocates say many people don't read warning letters that they will be subject to potentially more expensive coverage if they don't restore their original coverage or line up some other homeowner's policy.

Read complete article here

Posted 3/26/2013


When homeowners run into financial trouble, they often let their hazard insurance lapse. Because lenders require homeowners to be insured against damage or total loss — say, from a fire — policies are then forced on the borrowers and added to their monthly mortgage payments.  It’s called forced-place insurance and has been around for a long time but now it is forcing many homeowners into foreclosure.

Posted 7/8/2012

Fleecing of American Homeowners:
Lender Force-Placed Insurance

From 7/6/2012 post by Anna Cuevas on Huffington Post Blog

Banks have always required homeowners to maintain insurance on their mortgaged properties. However, some homeowners have found that they cannot maintain the premiums on that insurance and cancel their policies or they change the policy to one that provides less coverage in an effort to afford the premium. The response by lenders has been to provide them with insurance, adding the premium to the monthly mortgage payment. As a result, homeowners who were facing financial difficulties find themselves at risk of foreclosure, especially if the insurance premium is substantial.

It's known as force-placed insurance, and it's come under scrutiny due to the fact that some lenders are purchasing insurance that is five to 1- times higher than a standard homeowner's insurance policy would be, pushing their monthly mortgage payment over the brink. Typically, banks and mortgage servicers contract with insurance companies to provide homeowner's insurance for those without coverage or who have insufficient coverage. Typically, the bank pays the premium to the insurance company, and in return, the insurance company pays the bank a commission. Then the bank tacks on the premium, as well as the commission, to the homeowner's monthly mortgage payment. While the home is now insured, it should be noted that some force-placed policies provide less than adequate coverage while charging high premiums, and some banks may actually be subsidizing the policies, which can create a conflict by providing them with an incentive not to pay claims.

Read complete article

Posted 7/8/2012

Hazard Insurance With Its Own Perils

From 1/21/2012 article by Gretchen Morgenson in NY Times

ONE of the richest and most secretive sources of profit in the mortgage business is coming under scrutiny.

Investigators are training their sights on a type of hazard insurance policy known as force-placed insurance, a type of policy that has driven up costs for homeowners and pushed some into foreclosure.

Benjamin M. Lawsky, the superintendent of the New York State Department of Financial Services, is investigating institutions that underwrite and sell force-placed insurance.  “Force-placed insurance appears to be the dirty little secret of the mortgage industry,” Mr. Lawsky said in an interview last week. “It is a silent killer harming both consumer and investors while enriching the banks and their affiliates.”

Force-placed insurance has exploded during the foreclosure crisis. Once a backwater that generated $1 billion a year, it is now a $6 billion-a-year business. Much of its growth has come on the backs of homeowners.

When homeowners run into financial trouble, they often let their hazard insurance lapse. Because lenders require homeowners to be insured against damage or total loss — say, from a fire — policies are then forced on the borrowers and added to their monthly mortgage payments.

There is a lot to love about force-placed insurance — if you sell it. The policies typically cost at least three times as much as ordinary property insurance. Some borrowers have been charged much more — up to 10 times the prevailing rate — according to people knowledgeable about these practices who spoke on condition of anonymity to maintain business relationships.

Mind you, force-placed policies do not protect homeowners from loss. Only lenders are covered. But homeowners must pay the freight. And lender-placed insurance typically does not carry deductibles, as typical policies do.

All in all, force-placed insurance represents a major profit center for mortgage servicers and the companies that write the policies. In many cases, you will not be surprised to learn, the servicers and the insurers are affiliated.

Read more

More articles on Forced Place Homeowners Insurance

Next Bank Scandal? Forced-Place Homeowners Insurance

Ties to Insurers Could Land Mortgage Servicers in More Trouble

The force-placed insurance scandal

Posted 2/27/2012

Do we in Mobile and Baldwin Counties deserve these high wind premiums?

Article by Michelle Kurtz published in Lake Forest's newspaper.

The answer is resoundingly NO.

Homeowners’ Hurricane Insurance Initiative (HHII) has been working since 2006 on this issue because it is crippling our economy, draining our family budgets which were/are already very tight and because this is a justice issue. Coastal Alabama has not seen a hurricane since 2005, so do we deserve to be paying 300 – 600% above the State average of about $1,000?? (upstate does not have separate wind policies with high deductibles) HHII crafted the Clarity Law in 2010, which required all admitted companies to report to the Alabama Department of Insurance (ADOI) their premiums and claims by zip code for homeowners insurance. In 2012 the law passed, thanks to the teamwork of Sen. Pittman and Rep. Faust in the Alabama Legislature.

When the data came on- line Thanksgiving 2013 it clearly showed that the Mobile and Baldwin had less losses. (view the data yourself at https://aldoi.gov/PICAWeb/Account/CompanyInfo.aspx). And now with an additional years on-line, the dollar-claims per policy in Mobile and Baldwin Counties is $585 and the rest of Alabama is $703 dollar-claims per policy for the last 10 years. The ADOI agrees with our claims losses in dollars per policy. Mobile and Baldwin are not the problem in the State, but we our premiums are 300-600% more.

Tenaciously, HHII worked to make this injustice known to the public, to our elected officials and to the Alabama Department of Insurance (ADOI), the arm of our state government that is supposed to protect consumers. Thankfully, with the full support of the Coastal Legislative Delegation, Governor Bentley has created the Coastal Insurance Work Group (CIWG) which will begin this Fall, after the Special Legislative Session. Representatives from the ADOI/ insurance industry, the Governors’ office, the new director of the Alabama Insurance Information and Research Center, elected officials and educated citizens from Mobile and Baldwin Counties populate the Work Group. The CIWG will meet two days a week back to back for six hours a day. Minutes will be posted on the www.hhii.us web site and you can sign up to receive the minutes. Please go to www.hhii.us to read the letter from the Governor and the credentials of the Work Group. Citizens knowing what is being discussed in CIWG is the only reason why this work group will be a success. CIWG will fail, like the other commissions, unless hundreds of citizens are looking in and giving feedback.

Finally, consider these facts:

1. For the last ten years, Mobile and Baldwin Counties have paid out $700 million in premiums above the state average premium of $950 per policy.

2.In 2013 alone Mobile and Baldwin counties paid $338.7 million in premiums but received only $69 million in claims yielding a $277 million difference. A HUGE GOUGE taken out of our family budgets and imagine how that could help the State’s budget!

3.Governor Bentley stated that homeowners’ insurance on the coast “is unfair the way it is done” on 710 AM in Mobile during the Uncle Henry show September 30, 2014.

4. Existing Alabama law –Title 27 insurance; Chapter 13 Rates & Rating organizations; article 1 states that rates must not be:

 · Excessive to the consumer,

 · Inadequate to the industry,


HHII is a church based, Christ Centered grassroots initiative working to bring down coastal wind premiums. There are seven chapters in Mobile and Baldwin Counties. You can join at www.hhii.us or find us on Facebook at Homeowners Hurricane Insurance Initiative Concerned Citizens Group. We also have partner groups in Louisiana and Mississippi, which have also passed the Clarity Law. If you have any questions, please contact Michelle Kurtz at 251-928-3430.


If you are a praying person, please pray that the recommendations of this Work Group will be implemented. The Lord has taken HHII so far and to Him be the glory!

Updated 2/20/2016

Homeowners Premiums Gouge Coastal Alabama
Mobile & Baldwin County pay 300% to 600% More!

The Alabama Clarity Law Data; the Alabama Department of Insurance (DOI) White Paper; and the Homeowners Hurricane Insurance Initiative (HHII) Response

In a 2010 interview with Mobile Press Register reporter Jeff Amy, Governor Robert Bentley publicly supported the Clarity Bill. Governor Bentley promptly signed the bill into law when Sen. Trip Pittman and Representative Joe Faust with coastal legislators got it passed in 2012. The Clarity Law required the Alabama Department of Insurance to collect, aggregate, and publish total insurance premiums and losses by zip codes. As a consequence a tremendous amount of statewide premiums and claims information came online at the DOI website Thanksgiving eve 2013.

 • The data shows Mobile and Baldwin counties had a ten year average of $622 in losses per policy in comparison to $722 for the rest of the state.

 •  It includes data from Hurricanes Ivan and Katrina, Tropical Storm Ida and Mobile’s Christmas Day tornadoes. It clearly demonstrated that coastal losses are not 4 times higher, (range 300% to 600%) than the rest of the state.

 • The data also showed that the coastal counties paid for the losses caused by hurricanes Ivan and Katrina in the years before the storms, at the old premiums.

Though the vast amount of historical Clarity Law data cannot be used for ratemaking purposes by itself (additional calculations are needful), it serves as a sobering reality check, clearly demonstrating that cost of risk is not properly distributed, and that DOI methods need dramatic recalibration.

In the wake of releasing the data, however, the DOI issued a White Paper that cites six “Challenges with Drawing Conclusions from The Clarity Act Data.”

The following is a synopsis of DOI concerns,
and the HHII response.

1)The DOI concluded that even with the 400 percent increases in premiums, coastal counties are paying too little for insurance.
HHII disagrees and asked DOI to prove this statement because the data reveals that losses caused by Hurricanes Ivan and Katrina, plus the cost of doing business, plus profits were paid for in the years leading up to the storms at the old premiums. This, alone, refutes the DOI conclusion that a 300% to 600% premium increase was necessary.

 2) The DOI pointed out that Clarity Law data double-counts some policies causing a 10% error.

 3) The DOI said that the 2011 Tuscaloosa tornado losses should be dismissed from the data and hurricane losses retained when comparing coastal counties with the rest of the state.

 4) The DOI said the data does not include information from surplus lines, non-typical insurance providers.

 5) The DOI said data is missing because some companies went out of businesses.

 6) The DOI said some families have dropped their wind coverage since insurance prices quadrupled. Any losses they suffered since dropping coverage were not reported.

If all above DOI objections are granted then the Coastal Counties cost estimated by HHII would be $930. Far from the 300% to $600 the DOI has dictated for Mobile and Baldwin County. Of course granting all objections are not valid so…


With reasonable adjustments made for all DOI concerns, the average coastal loss per policy is $777, the rest of the state is $722. Coastal losses are 8% higher -- that is, statistically even with the rest of the state. They are nowhere near 400% higher as allowed by the DOI.

This factual, historical data is very significant.

It captures all the premiums, all the claims, all the policies from all the admitted insurance companies in all the state’s zip codes from years 2007 – 2012. The Clarity Law data includes Alabama Insurance Underwriters Association (the state “Wind Pool”) during the years of Hurricane’s Ivan and Katrina.

In contrast, the prior administration and former insurance commissioner made their 2006 decisions to dramatically change the way coastal counties are treated without this vast data pool. As each company sought changes, the DOI relied on one company’s data from five years, supplied by territories, not zip code, augmented by EXPERIMENTAL hurricane catastrophe models which, themselves, contained minimal upstate hurricane information, no tornado, hail or straight-line wind data at all, and no zip-code data from non-hurricane years. The DOI also did not have information from surplus lines.

The Clarity Law data is vastly superior to the data available when the former insurance commissioner changed the way coastal Alabama would be treated. It overwhelmingly demonstrates that coastal counties’ losses do not justify charging coastal Alabama 4 times more than the rest of the state.

Alabama law requires that the DOI prohibit inadequate and excessive premiums. The law also requires that the DOI prohibit discrimination. The data overwhelmingly suggests that coastal premiums are excessive and discriminatory.

Though the Clarity Law data cannot, and was never intended to, be used for ratemaking purposes by itself (a few additional calculations are necessary), it clearly demonstrates that cost of risk is not properly distributed, and that DOI methods need dramatic recalibration.

Both the law and common decency require it.

Click here to download the original MS Word file

Click here to read DOI White Paper & HHII rebuttal on interpreting Clarity Law data

Updated 7/1/2014

Consumer Watchdog Calls For Rate Reductions: Allstate, CSAA and Liberty Mutual Overcharging Homeowners Insurance Customers

PR Newswire 7/23/2014

Consumer Watchdog has petitioned Insurance Commissioner Dave Jones to hold public hearings on the excessive rates of three top homeowners insurers – Allstate, CSAA, and Liberty Mutual.

Additionally, Consumer Watchdog petitioned the Commissioner to reject CSAA's (Northern California Auto Club) request to hike its tenants insurance rates by 6.9% overall. CSAA's tenant policyholders who are not AAA members, and thus not eligible for a newly proposed AAA 5% discount, could see premiums rise by as much as 12% under CSAA's proposal. View the petition here.

"These homeowners insurers are enjoying double-digit profits while paying out less than 50 cents in claims for every premium dollar they collect," stated Pamela Pressley, Consumer Watchdog Litigation Director. "We call on the Insurance Commissioner to require these companies to submit their books to public scrutiny so that consumers can receive the premium reductions to which they are entitled,"

According to the Consumer Watchdog petitions:

*  During 2010, 2011, 2012 and 2013, Allstate's homeowners insurance lines' loss & defense cost ratios calculated by calendar year radically dropped to 48.6%, 48.4%, 43.3%, and 39.4%, respectively. At the same time that Allstate's loss & DCCE ratios have been plummeting, they have enjoyed skyrocketing profits. According Consumer Watchdog's actuarial consultant, Allstate gained underwriting profits of approximately 25.5% in 2013. View the petition here:

*  During 2011, 2012 and 2013, CSAA's homeowners insurance lines' loss & defense cost ratios calculated by calendar year radically dropped to 43.8%, 38.3%, and 39.9%, respectively. At the same time that CSAA's loss & DCCE ratios have been plummeting, they have enjoyed skyrocketing profits. According to Consumer Watchdog's actuarial consultant, CSAA gained underwriting profits of approximately 25% in 2013. View the petition here

*  During 2011, 2012 and 2013, Liberty Mutual's homeowners insurance lines' loss & defense ratios calculated by calendar year were 25.5%, 36.5%, and 40.7%, respectively. At the same time that Liberty Mutual's has experienced low loss & DCCE ratios, they have enjoyed skyrocketing profits. According to Consumer Watchdog's actuarial consultant, Liberty Mutual gained underwriting profits of approximately 34% in 2013. View the petition here.

According to a recent analysis by Consumer Watchdog, several top homeowners insurers are experiencing declining losses while enjoying skyrocketing profits. As a result, they should be lowering homeowners' premiums. Instead, many of these top homeowners insurers have not changed their rates in over a year and are charging consumers excessive rates. See Consumer Watchdog's analysis of the top 25 homeowners insurers here.

Proposition 103, approved at the ballot by voters in 1988, requires auto, home and business insurance companies to open their books and publicly justify rate changes before they take effect. It also allows members of the public to challenge insurance rates that are excessive. Consumer Watchdog challenges to auto, home, medical malpractice and earthquake rate hikes proposed by insurance companies but proven excessive have resulted in more than $3 billion saved for consumers since 2002.

Posted 7/29/2014

Will home insurance hikes from freak weather end up as ‘all profit’?

When Warren Buffett was asked if climate change was forcing the insurance companies owned by his Berkshire Hathaway to alter the math that determines their customers’ monthly premiums, he replied “The effects of climate change, if any, have not affected the insurance market.  I calculate the probabilities of catastrophes no differently than a few years ago.”

Click on this link to read complete story

Posted 6/13/2014


As the painful processes of grieving, clearing debris and recovery from the Moore, OK, tornado begins, insurance funds will be a critical source of help for the victims.

One major insurance-related worry is that many Oklahoma insurers changed their policies in recent years to drastically reduce the amount they will pay for roofs. Two years ago a major insurer got the approval for this reduction through a feel-good labeled "House and Home" endorsement.

United Policyholders protested loudly, but the product went on the market and many companies followed the lead and made similar reductions. This will no doubt be a huge recovery hurdle and a financial headache people do not need.

Thanks to United Policyholders for this information

 Posted 5/22/2013

Homeowners fume about high rates and “replacement costs”

From 3/31/2013 story by Tony Bartelme in Charlston, SC, The Post and Courier

In 2003, Geraldine and Tony Luppino built a home on a thumb of land that juts into St. Helena Sound. Fearing hurricanes, they made sure their new house was solid, complete with foot-thick concrete walls, hurricane straps for the roof and impact-resistant windows. In all, they paid a contractor $583,435.

So they were more than a little surprised two years later when they got a letter from Nationwide, their insurance carrier. The insurer had a new calculation for the home’s “replacement cost” — $1.54 million. Their premium and deductible would be based on this new figure.

Luppino and her husband Tony built it for $583,435, and question whether insurers are inflating home values to raise premiums. “We couldn’t believe it,” Geraldine said. “It was almost a million dollars more than we paid to build it, and it had nothing to do with our personal belongings. It was for the building only. It didn’t make sense.”

Stories like these are fueling a push to change an insurance playing field that critics say is tilted against consumers. On March 21, state Sen. Tom Davis, R-Beaufort, filed what he called the “Competitive Insurance Act,” legislation he said he hopes will help lure more companies to South Carolina and lower rates.

Read complete story

Read more about inflated replacement costs

Posted 3/31/2013

Insider tells how some insurance companies rig the system

From 12/2/2012 story by Tony Bartelme in Charlston, SC, The Post and Courier

Mark Romano, a former Allstate executive turned whistleblower, was in charge of a computer program called "Colossus" that calculates money people are paid in claims. Romano "tuned" the program to increase profits, which he says was unfair to customers.

Insurers use an array of computer programs that guide the flow of trillions of dollars to and from customers around the world. These programs include sophisticated “catastrophe models” that use weather data and other factors to predict an insurance company’s losses in a disaster. “Scoring models” use credit histories and secret algorithms to estimate which customers are more likely to file claims. Colossus and similar programs help companies manage claims. Insurance industry critics and even many insiders call these programs “black boxes” because their formulas, data sets and operational policies are cloaked in secrecy.

Read the full story on how insurance claim payments are low-balled.

Posted 12/5/2012


An insurance company, knowing the coastal insurance is hard to find, forces the homeowner to take out a policy requiring a minimum of 250K in coverage. It does not write a coastal policy for less than 250K, regardless of the value of the home, and often uses a computer program to ”appraise” homes so that they are artificially inflated upward.

This system almost doubles the premium. Instead of a homeowner paying say $3,500 (which is already 4x higher than the Alabama state average of $900 a year), they will end up paying $7,000 a year. This enables the insurance companies to essentially raise their premium without getting regulatory approval through the rate making process supervised by the Alabama Department of Insurance.

This is incredibly lucrative for the insurance companies after a named storm that requires the home owner to pay a percentage of their coverage as a deductible. A percentage of $250K is much higher than a percentage of $125 K.

In addition, should a homeowner have total (or even partial) losses there is no guarantee that the insurance company will indeed pay the difference between the actual value of the home ($125K) and the amount that the homeowners were forced to insure for (e.g. 250K – a difference of $125K)

So, there is not necessarily a wind fall (ie. excess in coverage) that will occur in a loss that does happen, for those asserting that it may be best to be over insured rather than under insured.

If this has been your experience, please call or email Elizabeth Citrin, 251-626-8808 or elizabeth@elizabethcitrin.com

Posted 7/1/2012

This page last updated 4/13/2016