More on insurers failing to act in good faith. It’s not surprising to read that QBE and Wells Fargo (as well as other banks and insurers) are under fierce attack for fraudulent practices in connection with forced placed insurance. One article is here in American Banker. LAW360 and others have been covering the story as to QBE specifically since last fall when this opinion was issued. Now, a class action has been certified, as described here (with a link to the opinion).
Fraud in forced place insurance is a subject that strikes a chord with me. I’ve seen the absurd rates and charges through work for others. And, then, a couple of years ago, after my mortgage had been bought and sold a few times, one of the banks started sending me hysterical and inaccurate letters claiming that my homeowners insurance did not exist because they had no proof it existed. No doubt they lost the insurance papers, since I’ve always had it and all the prior mortgage holders were happy. Ultimately a couple of hours of my time ended up wasted because of the bank’s inability to track its own paper. And, yes, I was threatened with forced placed insurance, and have no doubt the premium would have been exorbitant.
Set out below are excerpts from reporting at Columbia’s Journalism school on the American Banker articles
— American Banker’s Jeff Horwitz continues to examine the forced-place insurance industry, reporting that a Florida judge has given class-action status to a suit against Wells Fargo. The judge accused Wells of threatening its customers who considered joining the suit.
The Banker writes that forced-place companies like Wells partner QBE are “being accused of paying unearned commissions to banks, charging high rates and backdating policies to boost premium revenues.” Kickbacks, in other words.
What’s sweet about this story is that the Banker got court documents in PACER a few days before Wells got the judge to seal them. Here’s what it found as a result:
QBE pays out 40% of total force-placed premiums as commission to its subsidiaries and Wells Fargo, the Florida plaintiffs charge. And only 7.6 cents of every dollar of premium revenue QBE collects goes to paying claims, according to a plaintiffs’ analysis based on QBE data. Such a low payout ratio would be regarded as unacceptable in most states. Guidelines laid out by the National Association of Insurance Commissioners instruct insurers to aim for a payout of 60%.
What’s extra sweet is that these documents show the impact of an earlier Banker story (from April of last year) on the Wells litigation:
Emails presented in those documents suggest that Wells employees themselves were uncomfortable with the high premiums QBE was charging Wells’ borrowers. Following an American Banker article alleging that force-placed insurers were charging as much as 10 times the cost of borrowers’ previous hazard insurance, an unnamed Wells executive allegedly told colleagues that the bank needed to rein QBE in.