Lax mortgage oversight on required flood coverage
Excessive litigation is not just an issue here in Florida and it’s not just with Assignment of Benefits (AOB) contracts, either. The CEO of Travelers Insurance is the latest to reveal the impact it’s having on national rates. Plus another warning comes true: too many homeowners who should have mandatory flood insurance don’t, due to a lapse by the mortgage company. It’s all in this week’s Insurance Digest.
Lawsuit by Nick Yougnson CC BY-SA 3.0 Alpha Stock Images
Litigation Impacts: In a fourth-quarter earnings call, Travelers Chairman and CEO Alan Schnitzer revealed the company’s legal costs have been rising across almost all lines and markets. He said the number of attorney-represented commercial auto claims is up 10% over the past six years with half of that increase in just 2018 and 2019.
Schnitzer said Travelers has had to respond by raising rates an average of 5.1%, with renewal premiums up 7.8%. He warned that the company will exit market segments or accounts if it can’t get rate approval. Schnitzer said that plaintiff attorneys are getting more sophisticated, clever, and aggressive, forcing the company to respond with equal sophistication.
As we’ve reported here in Florida, abusive and fraudulent AOB practices, along with other excessive litigation, is making double-digit property insurance rate increases the new normal.
Uninsured Homes: We’ve reported many times here that 69% of American homes in high risk flood zones do not have flood insurance, according to FEMA. We’ve often thought that surely some of those homes have mortgages – and specifically mortgages backed by Fannie Mae and Freddie Mac, thus requiring federal flood insurance by law. Aren’t the banks.supposed to enforce the mandatory purchase of flood insurance in the nation’s most known (and prone to) flood areas?
Yep. Citibank last week agreed to pay an $18 million civil fine to the Office of the Comptroller of the Currency (OCC), an independent bureau of the U.S. Treasury Department. According to an OCC news release, “the bank engaged in a pattern or practice of violating the Flood Disaster Protection Act… by failing to purchase regulatory required flood insurance… in a timely manner.”
What happened? The bank used a third-party vendor to send notices to borrowers giving them 45 days to purchase the required flood insurance on their own or else the bank would purchase it and charge them for it. OCC said Citibank’s weak compliance procedures were to blame and the problem dates back to at least 2014.
Hurricane Fraud: The U.S. Attorney’s Office announced indictments against two Florida residents for filing fraudulent requests for disaster assistance after Hurricane Irma. Bernita Carswell of Jacksonville and Deannajo White of Suwannee County are accused of falsifying records about their primary residences when they submitted applications to FEMA for assistance. Each woman faces up to 30 years in federal prison, if convicted.
LMA Newsletter of 1-27-20
