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5 May 2016
The US operations of QBE have come under fire over insurance policies forced on homeowners struggling to pay their home mortgages.
The practice of “force-placed insurance” will be tested in Florida after a local judge ruled a class action involving 20,000 plaintiffs could proceed against bank Wells Fargo and QBE for allegedly overcharging on insurance policies.
Homeowners who cancel or allow their home insurance policies to lapse can be forced into paying a much higher rate under the practice known as “force-placed insurance”, where a bank lender takes out an insurance policy to protect their investment and then passes on the cost to the homeowner.
Plaintiffs claim Well Fargo passed on the cost of force-placed insurance provided by QBE, which in some cases was up to 14 times higher than equivalent insurance.
QBE says it was simply applying appropriate pricing to reflect risks that “prevail in this market”.
As New York state investigators examine 31 banks over what are described as “sometimes problematic overlap between banking and insurance”, lawyers for the plaintiffs say they plan to file suits in other US states.
A 2011 class action in Minneapolis against Chase Home Finance won 40,000 homeowners more than $US9 million ($8.45 million) over allegations the bank forced plaintiffs to buy unnecessary flood insurance.
The case has huge implications for QBE’s US mortgage insurance business – renamed QBE First last year.
QBE has about $US50 million ($46.96 million) in premiums riding on the outcome of the case.
The insurer’s US operations are among the most profitable in its global portfolio, with insurance profits rising 24% last year to $US440 million ($413.3 million) on the back of a 63% upswing in gross written premium.
This month the US Government-controlled Fannie Mae, which provides the bulk of funding for US home loans, told lenders it would “implement changes to its lender-placed insurance requirements to significantly reduce costs to homeowners, taxpayers, and Fannie Mae”.
The US Consumer Financial Protection Bureau is also due to issue mortgage servicing rules this year that would impose new limits on force-placed insurance products.
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