An Emerging Insurance Fraud in America

Nothing is proved yet, but needles of suspicion are pointing towards some big entities.

A New York State financial services agency headed by Mr Lawsky, is investigating JPMorgan Chase, Bank of America, Citigroup and Wells Fargo for their alleged involvement in force-placed home insurance.

Force-placed insurance is quite common, wherever Banks have affiliates or subsidiaries doing insurance. Or, where Banks do insurance business on behalf of their customers, may be for a referral fee, or for barter of some mutual gains. Force-placed insurance can also happen when an insurance company offers incentives to the dealing hand working in loan recovery department or mortgage servicing department of a Bank.

Whatever be the source of this practice, the borrower/mortgage holder is a loser, because he is obliged to pay much more than if he were to purchase insurance policy elsewhere all by himself.

In USA, where unemployment is high and retrenchments have become everyday rut, home loan repayments are becoming increasingly difficult.

The first casualty of dwindling family income is always the insurance, being very low on the need chart. This is the beginning of the tale for force-placement of insurance.

Once the borrower fails to keep his home covered by insurance policy, mortgage company, become free to buy insurance from any entity of their choice, without any reference to the borrower. we say, insurance is force-placed.

This is as anyone would naturally expect, as the properties are to be secured anyway by some stakeholder or the other, when the primary stakeholder fails.

Up to this stage it is natural justice. What follows is greed.

The mortgage company thus force-placing home insurance of a defaulted borrower, after the homeowner allows existing coverage to lapse, does not pay for it. I mean they pay the premium alright in the first place, but recover it from the homeowner, in the next step - with interest.

When the insurance premium charged is ten times the normal rate, to earn private incentives at the cost of the home owner, rather than looking for the best rates on the open market, the situation becomes Shylockian.

This is fraud!

In a declining home loan servicing scenario, such frauds become rampant, as opportunism overrides humanity.

This is what Mr. Lawsky’s office is investigating.
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Based on a leaked report published by the New York Times today...
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