This week the ABIA submitted a comment letter to the New York Department of Financial Services (NYDFS) on their proposed rules for lender-placed insurance (LPI). As background, NYDFS' proposed regulations exceed the Consumer Financial Protection Bureau's (CFPB) rules for the product in several ways including:
- prohibiting commissions and affiliate reinsurance arrangements;
- specifying a minimum 62% loss ratio and triennial rate filings; and
- prohibiting other practices, including providing free or below cost tracking services.
In the letter, ABIA explained the importance of LPI and stated:
"the NYDFS’s proposed prohibition on compensation for services actually performed, outlined in proposed section 227.6(c), fails to acknowledge the existence of legitimate producer activities in lender-placed insurance placements. Similarly, the proposed prohibition on sharing risk (reinsuring lender-placed insurance coverage), outlined in proposed section 227.6(e) fails to acknowledge the existence of legitimate risk-shifting that occurs in affiliate reinsurance arrangements. As further explained below, we urge the NYDFS not to adopt a one-size-fits-all approach, to avoid banning all lender-placed insurance commissions and reinsurance arrangements, and to only adopt rules that are narrowly tailored to meet the Department’s objectives."