DFS-39-13-00022-A Regulation of Force-Placed Insurance
1/7/15 N.Y. St. Reg. DFS-39-13-00022-A
NEW YORK STATE REGISTER
VOLUME XXXVII, ISSUE 1
January 07, 2015
RULE MAKING ACTIVITIES
DEPARTMENT OF FINANCIAL SERVICES
NOTICE OF ADOPTION
I.D No. DFS-39-13-00022-A
Filing No. 1075
Filing Date. Dec. 19, 2014
Effective Date. s , 30 d
Regulation of Force-Placed Insurance
PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:
Action taken:
Addition of Part 227 (Regulation 202) to Title 11 NYCRR.
Statutory authority:
Financial Services Law, sections 202, 301 and 302; Insurance Law, sections 301, 308, 2110, 2303, 2304, 2324 and 2403 and arts. 21, 23, 24 and 34
Subject:
Regulation of force-placed insurance.
Purpose:
To set forth rules regarding, among other things, the rating and placement of, and practices related to, force-placed insurance.
Substance of final rule:
This rule sets forth rules for the rates for and placement of force-placed insurance and prohibits certain practices related to force-placed insurance in order to protect homeowners and investors from harm caused by excessive force-placed insurance rates, questionable business practices and relationships in the force-placed insurance industry, and inadequate notice of force-placed insurance.
Section 227.0 sets forth the purpose of the rule.
Section 227.1 provides definitions applicable to the rule.
Section 227.2 sets minimum adequate notification requirements to ensure homeowners understand their responsibility to maintain homeowners insurance, and that they may purchase voluntary homeowners insurance coverage at any time.
Section 227.3 sets the maximum amount of force-placed insurance coverage that an insurer may issue on a New York property.
Section 227.4 requires an insurer, insurance producer, or affiliate that receives correspondence related to force-placed insurance from a borrower on behalf a servicer to accept any reasonable form of written confirmation of a borrower’s existing insurance coverage.
Section 227.5 requires an insurer, insurance producer, or affiliate to refund all force-placed insurance premiums for any period of overlapping insurance coverage within fifteen days of receiving evidence demonstrating that the borrower has had in place hazard insurance coverage that complies with the mortgage’s requirements to maintain hazard insurance.
Section 227.6 prohibits certain practices with respect to force-placed insurance, including: the payment of commissions to servicer-affiliated insurance producers; the sharing of force-placed insurance premiums or risk with a servicer affiliate; and issuing force-placed insurance on property serviced by a servicer affiliated with the insurer.
Section 227.7 requires insurers to regularly inform the Department of loss ratios actually experienced and re-file rates when actual loss ratios are below 40 percent, and sets a permissible loss ratio for rate filings to ensure that premiums are set at a rate reasonably related to paid claims.
Section 227.8 sets forth the effective date of the rule.
Final rule as compared with last published rule:
Nonsubstantive changes were made in sections 227.1(f), 227.2(b), 227.6(d) and 227.8.
Revised rule making(s) were previously published in the State Register on
October 15, 2014.
Text of rule and any required statements and analyses may be obtained from:
Brian Montgomery, Department of Financial Services, One State Street, New York, NY 10004, (212) 480-2296, email: Brian.Montgomery@dfs.ny.gov
Revised Regulatory Impact Statement
No new Regulatory Impact Statement is needed. The changes to the rule are substantively similar to the previously published revised proposed rulemaking. The amendments clarify the rule and provide additional time to prepare for compliance.
Revised Regulatory Flexibility Analysis
No new Regulatory Flexibility Analysis for Small Businesses and Local Governments is needed. The changes to the rule are substantively similar to the previously published revised proposed rulemaking. The amendments clarify the rule and provide additional time to prepare for compliance.
Revised Rural Area Flexibility Analysis
No new Rural Area Flexibility Analysis is needed. The changes to the rule are substantively similar to the previously revised proposed rulemaking. The amendments clarify the rule and provide additional time to prepare for compliance.
Revised Job Impact Statement
No new Job Impact Statement is needed. The changes to the rule are substantively similar to the previously published revised proposed rulemaking. The new changes clarify the rule and provide additional time to prepare for compliance.
Initial Review of Rule
As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2017, which is no later than the 3rd year after the year in which this rule is being adopted.
Assessment of Public Comment
The New York State Department of Financial Services (“Department”) received comments from a company that owns an insurer that provides force-placed insurance (“insurer”), an insurance producer and a group of affiliated insurers that provide force-placed insurance (“insurance producer”), an organization that represents banks that are engaged in the business of insurance (“bank organization”), an organization that represents more than 1,000 property/casualty insurers nationally (“property/casualty trade organization”), a statewide organization and a nationwide organization that represent mortgage lenders and servicers and other related firms (“mortgage organizations”), a statewide organization that represents banks (“state bank organization”), a state-wide coalition of over 160 members that promotes access to fair and affordable financial services (“New York consumer coalition”), and an international association of commercial insurance and employee benefits intermediaries (“commercial insurance organization”) in response to its publication of the revised proposed rule in the New York State Register.
Comments on specific parts of the proposed rule are discussed below.
11 NYCRR § 227.2(c)
Comment
The insurance producer commented that at least one of its servicer customers believes that envelopes that include the text “important homeowners insurance information” in compliance with subsection 227.2(c) would violate the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692f(8), which states:
A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section… (8) Using any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails or by telegram, except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business.
Department’s response
As a preliminary matter, it is not clear from the information provided in the comment that the communications required by section 227.2 would be covered by the FDCPA because the communications must be sent before a servicer assesses on a borrower any premium charge or fee related to force-placed insurance. Even assuming that the communications are covered by the FDCPA, the Department believes that compliance with subsection 227.2(c) would not violate the FDCPA. Several courts have interpreted 15 U.S.C. § 1692f(8) to permit an exception for benign language that does not reveal the contents of the envelope to pertain to debt collection. The phrase “important homeowners insurance information” does not imply that the contents of the envelope pertain to debt collection. The Department has not changed the rule to address this comment.
11 NYCRR § 227.6(d)
Comment
The commercial insurance organization commented that subsection 227.6(d) could be read to apply to all agent activity, but only to independent adjusters when acting in the adjustment of a loss for force-placed insurance.
Department’s Response
The Department has revised subsection 227.6(d) to make clear that the rule applies to agents or independent adjusters only when either entity acts in the adjustment of a loss for force-placed insurance.
11 NYCRR § 227.6(f)
Comment
The insurance producer commented that subsection 227.6(f) should be revised to permit an insurer, insurance producer or affiliate to reimburse servicers or their affiliates for expenses incurred in connection with a conversion to a new force-placed insurance provider. The insurance producer maintained that such payments fit within an exception to Insurance Law § 2324 that was described in a March 3, 2009 Insurance Department Circular Letter.
Department’s response
The insurance producer’s comment misinterprets Insurance Law § 2324 and the March 3, 2009 Circular Letter. In fact, the Department found in a consent order with one force-placed insurer that a payment to cover the conversion of a mortgage servicer’s portfolio to a new force-placed insurer violated the Insurance Law. Consequently, the Department did not change the rule to address this comment.
11 NYCRR § 227.7(a)
Comment
The New York consumer coalition commented that the Department should require an 80% minimum loss ratio.
Department’s Response
The Department believes that a 62% permissible loss ratio is appropriate at this time and did not change the rule to address this comment.
Insurance Tracking
Comment
The commercial insurance organization supported the Department’s revision to subsection 227.6(g) but commented that subsection 227.1(f) should be revised to exclude from the definition of insurance tracking all communication that is triggered by an irregularity that tracking activity discovers. The New York consumer coalition strongly supported the Department’s revisions to the insurance tracking provisions of the proposed rule and commented that subsection 227.7(c)(3) should be revised to require additional reporting. The insurer commented that subsections 227.6(g) and 227.7(f) and the distinction between insurance tracking before and after the borrower’s voluntary insurance has lapsed or been cancelled should be omitted from the final rule. The property/casualty trade organization and the bank organization commented that subsections 227.1(f), 227.6(g), 227.7(c)(3), and 227.7(f) should be removed from the final rule. The insurance producer commented that subsections 227.6(g) and 227.7(f) should be modified. The mortgage organizations and the bank organization commented that subsections 227.1(f), 227.6(g), 227.7(c)(3), and 227.7(f) should be revised. The insurer, insurance producer, bank organization and property/casualty trade organization commented that force-placed insurers should be permitted to include the expense of insurance tracking in their rates. The insurance producer and the mortgage organizations commented that the insurance tracking provisions of the proposed rule potentially or actually conflict with consent orders the Department entered into with force-placed insurers. The insurer commented that the proposed regulation would require new systems and processes to distinguish between tracking insurance before and after voluntary insurance lapses.
Department’s response
The Department learned after proposing the rule that some entities were incorrectly interpreting the Department’s consent orders with force-placed insurers and the proposed rule to allow the inclusion of insurance tracking expenses in force-placed insurance rates. The proposed rule’s treatment of insurance tracking expenses does not conflict with the Department’s consent orders with force-placed insurers because the consent orders did not address whether insurance tracking expenses were permitted in rates. The revised proposed rule clarifies that insurance tracking expenses are not permitted in force-placed insurance rates. The Department has not revised the proposed rule to omit or modify the insurance tracking provisions. However, the Department has revised the effective date of subsections 227.7(c) and 227.7(f) to allow insurers, insurance producers and affiliates time to implement changes necessary to comply with the rule.
Comment
The insurer, insurance producer, mortgage organizations, and property/casualty trade organization commented that force-placed insurers must be permitted to track insurance. The state bank organization commented that it believes the proposed rule would require a bank to track and monitor the existence of voluntary insurance.
Department’s response
The rule permits an insurer, insurance producer, or affiliate to provide insurance tracking to a bank or servicer, provided that the insurer, insurance producer or affiliate does not provide tracking for a reduced fee or no separately identifiable charge. The proposed rule does not require a bank to track and monitor voluntary insurance. Consequently, the Department did not change the rule to address this comment.
