lender placed insurance

Lender Placed Insurance Expert

A flurry of lawsuits has taken place over the last few years in connection with lender placed insurance, also referred to as "force placed insurance" by plaintiffs. Lender placed insurance consists of hazard, flood, and wind coverage which is placed on a borrower's property by a lender when no coverage is in place. The coverage is usually issued as part of a master policy which is purchased by the lender. The borrower is responsible for the premium payments which are higher than traditional insurance due to the lack of underwriting combined with usually higher than average risk characteristics.

Lender placed insurance is a regulated product and an important part of the lending industry as the coverage ensures that the loans issued by a lender are protected and therefore facilitates lending in high risk areas. Borrowers who end up with the coverage are those who did not comply with the terms of their mortgage loan contract by failing to keep the required insurance in place. When coverage is issued by the lender on a property and the borrower can subsequently show that the traditional insurance was already on the property, the premiums are refunded to the borrower.

Lawsuits often criticize three characteristics of lender placed insurance: Commissions, outsourcing of services, and retroactive coverage.

Up until recently, commissions were generally paid by insurance companies either as a straight commission or as some type of expense reimbursement. Plaintiffs refer to them as "kickbacks" while their actual intent is to compensate lenders for their administrative expenses associated with the insurance.

Some lenders outsource services to the insurance company that sold them the lender placed insurance policy. The services generally include the monitoring of insurance on the lenders' mortgage portfolio as well as other administrative services. Plaintiffs often complain about the vendor of such services being the insurance company.

Retroactive coverage is an important feature of lender placed insurance as it ensures that continuous coverage is in place starting when the traditional insurance lapsed on the mortgaged property. This feature ensures that if the property was already damaged, the lender will not suffer a loss. Plaintiffs usually protest having to pay for coverage for a time period which has elapsed.

We assist lending institutions and insurance carriers with their defense of lender place insurance lawsuits by providing an expert opinion which is based on sound actuarial and insurance principles. Give us a call to discuss how AACG can help you.


California Expert Actuary