Rhode Island Seperates Force-Placed Insurance from Tracking Costs
Rhode Island is one of the states now taking the lead in changing the way that the lender-placed insurance industry operates. Following an inquiry to the Insurance Division of the Rhode Island Department of Business Regulation, the Department confirmed that it has “recently taken the position that tracking fees should not be included within a rate filing,” stating further that it is “requiring insurers to submit new filings within 60 days removing such tracking fees from filings.”
Ever since the Great Recession and the passage of Dodd-Frank, we have seen a stark shift in the attitude of the nation toward the costs associated with loans. “Protect the consumer” has become the prevailing mantra, and not without good reason. About ten years ago, some of us in the industry looked at the traditional methods associated with lender-placed insurance – particularly in how insurance was tracked and placed – and saw change on the horizon.
Steadily and surely, that change has been making its way into the lender-placed insurance industry. Run a search for litigation around lender-placed insurance on any common search engine and one can find countless results of lawsuits, both active and being prepared. More recently, multiple states signed on to a settlement agreement with one of the largest firms tracking and placing insurance, forbidding the company from offering free or discounted tracking services. Rhode Island was one of the states involved with the original settlement.
If these states would not tolerate practices that encouraged one company to force-place insurance on consumers – that discounting costs as a way to sell the insurance and then profit almost purely through forced-placements created a moral hazard – then surely they would not want to tolerate the same practices from others.
As soon as that agreement was made, it should have been considered a clear signal to all other firms involved in the industry. If these states would not tolerate practices that encouraged one company to force-place insurance on consumers – that discounting costs as a way to sell the insurance and then profit almost purely through forced-placements created a moral hazard – then surely they would not want to tolerate the same practices from others. We can see these sentiments represented by the draft language the National Association of Insurance Commissioners (NAIC) has proposed for the Lender-Placed Insurance Model Act. Many of the requirements and restrictions on practices currently included in the draft echo those seen in the multi-state agreement.
Given that Rhode Island was one of the seven states originally involved in forming the settlement agreement, we have little doubt that it will likely be supportive of an act similar to the one being proposed by the NAIC. The other six states originally part of the agreement were Delaware, Florida, Indiana, Massachusetts, Missouri, and Pennsylvania. Rather than wait for the NAIC to reach a final draft and propose its model act to the states, however, Rhode Island has chosen to take a crucial step in this change now.
The question may no longer be if this change will be coming for the insurance industry across the nation but rather how quickly it may spread. From the multi-state settlement, to the NAIC’s model act for lender-placed insurance, to this step by Rhode Island insurance regulators, we can see a trend taking form. States do not wish to see a handful of their citizens covering the burden of those costs which are unrelated to the insurance itself.
Even as Miniter Group was first establishing its tracking services, the company anticipated that the general trend toward consumer protection would ultimately lead toward this sentiment and elected to maintain the cost of insurance and the cost of tracking as two distinctly separate elements. While the NAIC’s model act is still in the nascent phases of its development, and we are only looking at the actions by regulators in Rhode Island right now, we expect this trend will continue. It may be considered likely that the business of tracking overall will have to be viewed in a similar light across the industry in the near future.