Overview of Lender-Place Insurance Products, Markets and Issues
Birny Birnbaum
Lender-Placed Insurance Regulatory Working Group
Outreach Session, June 13, 2013
© Birny Birnbaum Consulting, Inc.
Birnbaum LPI Overview
Page 1
June 13, 2013
Overview of Lender-Placed Insurnce
Topics Covered
1. Ensuring Continuous Insurance Coverage
2. The LPI Policy
3. LPI Underwriting of Loan Portfolio
4. Blanket LPI vs. “Regular” LPI
5. Insurance Tracking
6. Other Features of LPI
7. Market Participants
8. Operation of Insurance Tracking and LPI
9. LPI Pricing
10. LPI Premium Charges Relative to Voluntary Property Insurance
11. LPI Flood
12. LPI Insurers
13. LPI by State
14. LPI Loss Ratios
15. Reverse Competition
16. Recent Regulatory Activity Involving LPI
17. Issues of Concern
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June 13, 2013
1. Ensuring Continuous Insurance Coverage
Mortgage loan agreements include a requirement that the borrower maintain insurance to protect
the property serving as collateral for the loan and, if the borrower fails to maintain the required
insurance or fails to provide required evidence of insurance, the lender, through the servicer, may
place insurance on the property serving as collateral for the loan and charge the borrower for this
insurance.
When the mortgage owner hires a mortgage servicer to service the loan on behalf of the
mortgage owner, the mortgage servicing agreement requires the servicer to maintain continuous
insurance coverage on the properties serving as collateral for the mortgage loans. Lender-Placed
Insurance (LPI) is an important tool for mortgage servicers to meet this requirement and for
mortgage markets to operate smoothly.
LPI is a master insurance policy issued to the mortgage servicer as the policyholder and insured.
A master policy means that the policy covers a group of properties and not just a single property
like the homeowners insurance policy purchased by a borrower. A master policy also means that
the policy covers all properties serving as collateral for loans in a specified loan portfolio and, as
a property becomes eligible for coverage, a certificate of coverage for the individual property is
issued under the master policy.
The LPI insurance policy provides that coverage begins on any property in the servicer’s covered
mortgage loan portfolio at the instant that the borrower’s voluntary policy ceases to provide the
required coverage. This provision is called automatic coverage. The LPI policy provides
coverage, for example, if the borrower’s homeowners insurance policy is canceled by the
borrower or the insurance company or lapses because of non-payment of premium. To ensure
that the property serving as collateral for its loans is always protected by insurance, the LPI
policy provides coverage whenever the borrower’s required insurance fails to remain in-force –
even if the servicer or its vendor do not discover this failure of insurance coverage for days or
weeks after the borrower’s policy coverage has ended. The LPI master policy covers all
properties in the servicer’s loan portfolio and provides coverage as needed.
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June 13, 2013
2. The LPI Policy
Master Policy Covers All Properties Serving as Collateral for Loans in Covered Portfolio
Automatic Coverage at Instant Borrower’s Voluntary Policy Lapses
No Individual Property Underwriting
Underwriting at the Loan Portfolio Level
Limited Coverage Compared to a Homeowner’s Policy – no personal property (contents), no
liability, no additional living expense.
Provides Coverage for Vacant Properties
LPI (borrower still has mortgage) vs. REO (bank-owned property)
3. Underwriting of Loan Portfolio
“Schedule Rating” – Base Rates Adjusted Up or Down for Individual Servicer Clients Based on
Characteristics of the Servicer’s Loan Portfolio
Examples of Schedule Rating by Assurant, QBE and American Modern Home Follow
4. Blanket LPI vs. “Regular” LPI
Typical LPI Policy – premium charged as coverage is issued under the master policy for
individual properties. Premium based primarily on amount of coverage established for the
property. Insurer bills servicer periodically for premium on coverage issued under the maser
policy. Insurance tracking required for this product. Servicer charges borrower if LPI placed on
borrower loan.
Blanket Policy – premiums charged based on number and type of loans / properties in the
covered portfolio with a charge for each property in the portfolio. No insurance tracking with a
blanket policy. No charging of individual borrowers by servicer; cost of LPI built into loan
servicing fee and, consequently, mortgage interest rate.
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American Security Insurance Company
MORTGAGEE’S INTEREST PROTECTION PROGRAM
FLORIDA
MANUAL PAGE
MIP-FL-R 0
1-12 R-9
G. SCHEDULE RATING PLAN
In recognition of the unique risk characteristics of each mortgagee, the rates
may be modified in accordance with the following schedule to reflect
characteristics of the risk not contemplated in the base rates.
The maximum rate modification is ( + ) or ( - ) 25%.
1) Criteria
Range of Modification
Debit Credit
a) Quality of Loan Underwriting + 20% to
- 20%
(1) Quality of Underwriting
(2) Source of Real Estate Loans – Direct and Indirect
(3) Overall Delinquency Ratio
(4) Average Loan to Value
b)
Quality of Loan Portfolio +15% to
-15%
(1) Mix - Government and Conventional
(2) Mix – Fixed and Variable
(3) Escrowed for Payment of Insurance
c) Transactional Efficiency + 10% to
- 10%
Systems Compatibility, Data Quality/Accuracy,
Automation, Reconciliation Capabilities,
Service Standards
d)
Management Experience +10% to
-10%
2) The credits or debits shall be summed and, if applicable, capped by the
maximum modification to determine the schedule rate modification.
3) All schedule credits and all schedule debits shall be based on evidence
that is contained in the file at the time the schedule credit or debit is
applied.
4) The effective date of any schedule credit or debit shall not be any date
prior to our receipt of the evidence supporting the credit or debit.
5) Any modification developed under this plan shall be for the term of the
policy, subject to company review. If the modification proves to be
inequitable because of materially changed conditions, a new modification
based upon such changed conditions shall be established. The new
modification will apply to all new and renewal certificates effective on or
after the date of such change.
6) To be eligible, a minimum policy premium of $1,000 applies.
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Effective Date: 9/1/2012 Page 13 of 13 Florida
Lender Name:
Year:
Agent Number:
State:
FL
Lender Number:
Product:
Hazard Insurance
Protection LP
Policy Eff. Date:
Praetorian Insurance Company
Hazard Insurance Protection
Account Rate Modification Plan
The following debits and credits will be applied to the appropriate base rates to recognize special
characteristics of the risk not contemplated in our base rates. The maximum modification allowed
is + / - 25%. Documentation supporting qualification for scheduled rating will be maintained by this
the policy term, new debits/credits will be calculated and applied on future coverage requests.
Risk Characteristics
Range of Modification
Lender
Rating
Credit Debit
30+ day contractual delinquency rate measured as a % of total active mortgage loans. -15% +15% 0.00%
Foreclosure loans measured as a % of total active mortgage loans. -10% +10% 0.00%
Named Insured choice to purchase coverage for the lesser of value of improvements -10% +10% 0.00%
or unpaid principal balance.
Operating Expenses Associated with Lender Placed Program -15% +15% 0.00%
Loss History for Hazard Insurance Protection -15% +15% 0.00%
Concentration of exposures in high risk (catastrophe prone) areas. -15% +15% 0.00%
Average property values. -15% +15% 0.00%
TOTAL
0.00%
Maximum Debit or Credit to be applied is 25%
Qualifier - Minimum Size of Account Must Equal $500,000 Annual W.P. or 50,000 loans
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Factors Decrease Increase
2.
3. Geographical Concentration
4. #Foreclosed/REO Properties 5% 1% or less 25% or more
5.
6. Delinquency Ratios
50% Under
National Average
50% Above National
Average
7.
8. Combined Ratio History 10% Between 95.1% - 97.5%
9. Combined Ratio History 15% Between 97.6% - 100.0%
10. Combined Ratio History 20% Above 100.0%
11. General Management Capability 1%
Average of #'s
3+4+5+6 above
Average of #'s 3+4+5+6
above
CALIFORNIA
AMERICAN MODERN HOME INSURANCE COMPANY
Mortgage Security Program
Rate Deviations Factors (maximum 25%)
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5. Insurance Tracking
From the American Security Insurance Company (ASIC), part of Assurant, cover letter to a 2013
LPI rate filing in Florida:
Any type of real estate loan involving a commercial or residential structure requires the
borrower to keep sufficient insurance coverage in force to satisfy the lender's interest
should the structure (collateral) be destroyed or damaged. In order to make sure this
requirement is met, most lenders have a department which keeps track of all the
insurance policies covering properties for outstanding loans. If borrower provided
coverage is cancelled or expired, the lender begins sending a series of follow-up letters
to the borrower reminding the borrower of his obligation to keep insurance in force. If the
borrower fails to comply, the lender will request issuance of the policy.
Most servicers outsource all insurance tracking functions, and other activities unrelated to LPI, to
the organizations providing the LPI.
For example, Assurant, through its business group called Assurant Specialty Property, provides
LPI, insurance tracking and other “hazard outsourcing” or “insurance outsourcing” services,
including:
New Loan Boarding – entering data on new loans into the mortgage servicer’s system of
record
Loss Drafts – releasing payments from voluntary insurers to borrowers for claims under
voluntary insurance policies
Escrow Administration – making payments from borrower’s escrow accounts to
voluntary insurers
QBE, through QBE First provides the same services to mortgage servicers, as well as property
tax payment services. Managing General Agents / Managing General Underwriters, in addition
to arranging for LPI for servicer clients, will also provide insurance tracking and other
outsourcing services for mortgage servicers.
Table 1 lists the activities associated with insurance tracking and placement and administration
of the LPI policy and whether those activities are related to the provision of LPI (and the
responsibility of the LPI insurer) or related to a requirement of the mortgage servicer as part of
its loan servicing responsibilities. In practice, all these activities are carried out by the LPI
vendor. A key point of debate is what activities (and associated expenses) should be permitted in
LPI charges to borrowers and what activities should be borne by the servicer as part of its loan
servicing activities.
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LPI-Related Servicing and Insurance Activities
Activity
Servicing vs.
Insurance
Tracking Insurance
Loading Insurance Information into Database Servicing
Maintaining/Monitoring Insurance Tracking Database Servicing
Contacting Borrowers, Problems with Insurance Servicing
Customer Service Borrowers Insurance Evidence Servicing
Contacting Insurers/Agents Insurance Evidence Servicing
Placing Insurance
Notifying Insurer to Issue Binder or Policy Servicing
Issuing Temporary Binder Insurance
Determining Coverage Amount Servicing
Servicer Payment to Insurer Insurance
Billing Borrower for LPI Premium Servicing
Setting up Escrow when necessary for LPI Servicing
Refunds to Servicer Insurance
Refunds to Borrower Servicing
Issuing Permanent Policy Insurance
Customer Service about Insurance Placement Servicing
Customer Service about Borrower Refunds Servicing
Customer Service about LPI Claims Insurance
6. Other Features of LPI
Perils Covered: Hazard, Flood, Excess Flood, Wind, Excess Wind
LPI vs. REO
Use of Surplus Lines Insurers
LPI is a Commercial Insurance Policy
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7. Market Participants
The buyers of LPI are mortgage servicers. The biggest servicers have loan portfolios comprising
millions of loans. Inside Mortgage Finance reported Wells Fargo, Chase and Citibank serviced
47% of mortgages by mortgage value at the end of the first quarter of 2012. There are many
mortgage servicers, but the vast majority have small loan portfolios.
The providers of LPI, insurance tracking and other outsourcing services fall into two groups.
The first group consists of Assurant and QBE who each have a few dozen servicer clients, but
together provide LPI and tracking services for over 50 million loans. In its recent comments to
the FHFA, QBE First wrote that “QBEF clients collectively service approximately 20 million
residential and commercial mortgages.” In the first quarter 2013 conference call with investment
analysts (“earnings call”), Assurant CEO Robert Pollock stated that Assurant “now provide
insurance and related services for nearly 33 million loans.”
The second group consists predominantly of managing general agents / managing general
underwriters who have many small servicer clients. The American Modern Home schedule
rating sheet gives a glimpse of this dual market – AMH provides a schedule rating discount if the
loan portfolio hits 20,000 loans. My guess is that the smallest Assurant client has a loan
portfolio larger than 20,000 loans.
The follow excerpts from the first quarter 2013 conference call between Assurant senior
management and investment analysts provides some insight into LPI markets.
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June 13, 2013
Excerpts from Assurant 1
st
Quarter 2013 Earnings Call Transcript
Assurant CEO Robert Pollock: Revenues also increased in our lender-placed business.
We now provide insurance and related services for nearly 33 million loans. This
represents a 16% increase from the first quarter of last year, even though we believe the
nationwide inventory of mortgage loans declined owe that period.
Our strategy of aligning with market leaders continues to pay off. In the next 2 quarters,
we will add another 900,000 loans from portfolio acquisitions by 2 of our clients.
The rollout of our new lender-placed product is on track and will be implemented in 28
states by the end of the second quarter. Our new product forms and rates submitted to
New York in March are pending review. In Florida, we will participate in a rate review
next month to discuss our previously submitted filing.
Assurant CFO Officer Michael John Peninger: Our placement rate in the first quarter
remained elevated at 2.89%, largely driven by loan portfolios acquired in the fourth
quarter of 2012. Absent these loans, placement rates would haw declined slightly.
We onboarded 1.7 million loans in the first quarter. And as Rob mentioned, we expect to
add another 900,000 loans over the next 2 quarters. These 2.6 million new loans will
produce premiums starting later this year. The changing composition of our loan
portfolio, combined with macro trends, will lead to lower placement rates in the future;
however, the new loans will help sustain our revenues over the course of 2013.
Assurant CFO Michael John Peninger: Well, there's a lot of expenses associated with
onboarding the loan, Sean, and we've got a couple of things going on, just adding the
loans, getting them onto the system, and then you've got - going forward, you've got the
service requirement for those.
Robert B. Pollock
And some of those expenses come before the premium shows up. And that's always been
how this business has worked and I think will continue to.
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8. Operation of Insurance Tracking and LPI
Servicer is Responsible for Insurance Tracking – Included in Mortgage Servicing Fee Paid by
Mortgage Owners
Tracking Vendor’s Data Systems Connect with Mortgage Servicer’s System of Record
Tracking Vendor Maintains Insurance Database, Updates Servicer System of Record
Positive Tracking: Tracking Vendor Get Bulk of Voluntary Insurance Information Through
Electronic Data Interchange with Voluntary Insurers. Servicer System of Record updated to
reflect evidence of required insurance.
Positive Tracking: If EDI does not produce required evidence, vendor contacts agent and/or
insurer to confirm voluntary insurance. If outreach successful, System of Record updated to
reflect evidence of required insurance.
Positive Tracking: If EDI or outreach to agent or insurer does not produce required evidence,
letter cycle to borrower is initiated. Initiation of notice letter cycle is automated.
Automated Issuance: If evidence of insurance not produced during period of warning letters and
the Servicer System of Record does not show required insurance in place, automated notification
to LPI insurer to issue coverage under LPI policy and automated LPI issuance of certificate of
coverage to servicer and borrower.
LPI vendor/insurer periodically bills servicer for premium associated with coverage issued in
that period.
Servicer charges borrower for LPI – removes amount of charge from escrow if sufficient funds
available, adds charge to escrow if escrow exists or creates escrow and adds charge to new
escrow if escrow did not exist.
Retroactive Billing: LPI coverage in force from time voluntary policy ceases to be in force. By
the time the certificate of coverage is issued for new LPI coverage, at least 45 days has passed
from lapse of voluntary policy and premium charge is billed retroactively from period starting at
date of lapse for a year of coverage.
Retroactive Billing: If lapse in coverage is discovered, for example, 18 months after lapse
occurred, letter cycle must still proceed and now retroactive billing would be for two years of
coverage with 18 months plus 45 days earned by LPI insurer. LPI insurer will bill premium to
servicer and servicer will charge this amount to borrower.
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Flat Cancellations / Full Refund: If coverage issued but borrower, in fact, had required insurance
in place, LPI coverage is “flat” cancelled with full refund to servicer. Servicer reverses LPI
charge to borrower after some period of time, depending on when borrower produced evidence
of insurance and how quickly tracking vendor and servicer process the information. Testimony
at NAIC and NY DFS hearings indicate flat cancellations in range of 10% to 20% of LPI
placements.
In the event of Borrower Default / Foreclosure, Mortgage Owner Pays LPI Premiums to
Mortgage Servicer.
9. LPI Pricing
Historically Very Simple Rating: Rate per $100 of coverage; a few states with territorial rating.
Most states had the same filed rate. Base rates varied by servicer client through schedule rating,
choice of deductibles
Significantly higher rates for Mobile Homes
Sometimes different rates for REO vs. non-REO
A few years back, Balboa introduced additional rating factors. QBE/Balboa introducing revised
rating factors and Assurant introducing new additional rating factors in the past year. Still
simple compared to homeowners insurance rating:
ASIC Additional Factors
Amount of Coverage Factor – Marginal increase in premium decreases with higher
coverage amounts
Coverage Settlement – Basic, Actual Cash Value, Replacement Cost
Expense Modification – Vary rate based on amount of commission selected by servicer-
affiliated agent.
QBE Additional Factors -- Florida
Amount of Coverage Factor
Age of Home – 15 years old or more 54% higher rate than 14 years or less
American Modern Home – California
Single Rate of $0.64 for $100 of coverage, same for LPI Hazard, REO and Vacant
Blanket Condo and First Mortgage: Rate of $0.017 per $1,000 of outstanding loan
balance in the portfolio for Condo and First Mortgage.
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10. LPI Premium Charges Relative to Voluntary Property Insurance
In testimony before the NAIC, an Assurant representative stated that the average LPI premium is
about twice the average homeowners premium
1
Rate filings contain some information on average LPI premium. The 2012 Praetorian Insurance
Company provided the following:
Balboa/QBE Average LPI Premium, 2006 - 2011
Year
Exposures Written Premium Average Premium
7/06-6/07 15,956 $37,427,737 $2,346
7/07-6/08 25,520 $125,281,407 $4,909
7/08-6/09 45,451 $297,001,037 $6,535
7/09-6/10 97,567 $596,331,000 $6,112
7/10-6/11 119,611 $589,176,927 $4,926
The 2012 LPI rate filings in California by ASIC, QBE and American Modern Home indicate
average LPI premiums from $1,800 to $2,500. This compares with an average homeowners
premium for the standard HO-3 policy of about $930. The American Modern Home rate filing
includes a list of each LPI coverage issued from 2009 through 2011 with the premium amount
for that coverage. The list shows significant variation in premium amounts and includes some
small amounts, likely associated with coverage in force for a short period of time. Two pages
listing American Modern Home premiums by policy follow.

1
See presentation of John Frobose of Assurant at
http://www.naic.org/documents/committees_c_120809_public_hearing_lender_placed_insurance_presentation_frob
ose.pdf
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Policy Count 2010 Premium
American Modern Home Insurance Company
Mortgage Security Program
California
Summary of Policies-In-Force & Premium 2010
586 $6,538
587 $3,324
588 $3,523
589 $1,445
590 $1,331
591 $3,768
592 $1,564
593 $186
594 $160
595 $246
596 $854
597 $515
598 $2,069
599 $3,150
600 $3,383
601 $3,285
602 $3,150
603 $2,184
604 $1,848
605 $980
606 $1,400
607 $2,318
608 $3,136
609 $903
610 $3,025
611 $857
612 $2,344
613 $2,260
614 $1,660
615 $2,864
616 $877
617 $239
618 $593
619 $1,119
620 $2,368
621 $1,759
622 $1,753
623 $679
624 $94
625 $152
626 $88
627 $110
628 $2,244
629 $7,718
630 $15,698
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Policy Count 2010 Premium
American Modern Home Insurance Company
Mortgage Security Program
California
Summary of Policies-In-Force & Premium 2010
631 $2,528
632 $5,874
633 $430
634 $2,100
635 $3,809
636 $2,814
637 $3,150
638 $1,575
639 $3,809
640 $1,200
641 $1,642
642 $3,065
643 $3,830
644 $2,350
645 $2,190
646 $1,298
647 $2,528
648 $2,864
649 $2,586
650 $4,225
651 $2,403
652 $1,781
653 $1,891
654 $1,889
655 $723
656 $1,979
657 $1,682
658 $1,507
659 $2,572
660 $2,124
661 $2,299
662 $219
663 $145
664 $189
665 $152
666 $158
667 $116
668 $96
669 $106
670 $134
671 $1,407
672 $557
673 $2,491
674 $22,282
675 $1,036
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11. LPI Flood
The mechanics of insurance tracking and placement of LPI are the same for LPI Flood as for LPI
Hazard, but there are some additional issues with LPI Flood.
Almost all voluntary flood insurance is provided by the National Flood Insurance Program
(NFIP). There are caps to the amount of coverage provided under an NFIP policy. Even if a
borrower has an NFIP flood policy, the coverage may not meet the lender’s coverage amount
requirements. LPI Flood is placed for the difference between the required amount of coverage
and the amount of coverage provided by the NFIP policy. This is LPI Excess Flood coverage.
In addition, there are LPI requirements under the Flood Disaster Protection Act of 1973.
The Biggart Watters Flood Insurance and Modernization Act of 2012 made significant changes
to the NFIP
2
Premium Rate Structure Reforms
Phases out subsidies for second homes, business properties, severe repetitive loss
properties, or substantially improved/damaged properties. Rates for these properties
will increase by 25 percent per year until premiums meet the full actuarial cost.
Requires that any premiums for a new flood insurance policy for a property not
currently covered must be based on actuarial rates.
Raises the annual cap on premium rate increases for any property (except those
subject to the phase-out) from 10 percent to 20 percent.
Requires FEMA to allow policyholders that are not required to have their premiums
escrowed every month with their lender to pay their premiums in installments. FEMA
currently requires a single annual premium payment.
Premium adjustment
Requires premium rate adjustment on any property located in an NFIP-participating area
to accurately reflect current risk of flood to such property. The determination is made
after the effective date of any revised or updated flood insurance rate map. Any increase
in the risk premium will be phased in over a 5-year period, at a rate of 20 percent. With
respect to properties located in areas not previously designated as an area having special
flood hazards and becomes designated as such an area, the chargeable risk premium rate
will be phased in over 5-year period, at a rate of 20 percent following the effective date of
the remapping.

2
From the NAIC summary of the Act at:
http://www.naic.org/documents/cipr_events_2012_cipr_summit_overview.pdf
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Escrow of flood insurance
Provides for regulated lenders to escrow flood insurance payments for loans made two or
more years after enactment of the law.
The impact of Biggart Watters is that many consumers currently required to purchase flood
insurance will see large rate increases for NFIP policies and many consumers not previously
required to purchase flood insurance will now be required to purchase flood insurance. One
likely outcome is a significant increase in LPI Flood placements.
A countervailing impact of Biggart Watters is the requirement for lenders to create escrow
accounts for flood insurance. When combined with the new requirements of the Consumer
Financial Protection Bureau’s (CFPB) mortgage servicing rule that servicers maintain voluntary
insurance policies which would otherwise be canceled or lapse because of non-payment of
premium for loans with existing escrow, the requirement for an escrow for flood insurance could
significantly reduce LPI Flood placements.
The NFIP has its own LPI Flood product called the Mortgage Portfolio Protection Program. A
recent description of the program is attached to the handout. The MPPP rates are significantly
higher than LPI Flood rates. I don’t have data on the amount of coverage issued under the
MPPP.
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12. LPI Insurers
Credit Insurance Experience Exhibit (CIEE)
The CIEE is a supplement to the statutory annual financial statement filed by insurers with state
insurance departments and the National Association of Insurance Commissioners (NAIC)
CIEE is the only source for company-specific LPI Data by state other than individual state rate
filings. Since not all states require rate filings and LPI insurers have gone many years without
making new rate filings, compiling data form individual rate filings not possible, let alone
feasible.
CIEE revised with reporting year 2004 for explicit reporting of LPI. CIEE Part 4A – Credit
Property Insurance: includes columns for Creditor-Placed Home Single Interest and Creditor-
Placed Home Dual Interest (as well as Creditor-Placed Auto and Credit Personal Property).
Each insurance company writing this type of insurance is required to report its experience by
state.
CIEE LPI data includes LPI Hazard, LPI Flood and LPI Wind Only. Data elements include:
1.1 Gross Written Premiums
1.2 Refunds on Terminations
1.3 New Written Premiums (Lines 1.1 – 1.2)
1.4 Premium Reserves, Start of Period
1.5 Premium Reserves, End of Period
1.6 Actual Earned Premiums (Lines 1.3 + 1.4 – 1.5)
2.1 Claims Paid
2.2 Total Claims Reserves, Start of Period
2.3 Total Claim Reserves, End of Period
2.4 Incurred Claims (Lines 2.1 – 2.2 + 2.3)
3.1 Commission and Service Fees Incurred
3.2 Other Incurred Compensation
3.3 Total Incurred Compensation (Lines 3.1 + 3.2)
5.1 Defense and Cost Containment Expense Incurred
5.2 Adjusting and Other Expenses Incurred
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LPI Nationwide Experience, 2004-2012
Premium ($ Millions) Loss Ratios
Year
GWP NWP EP Paid LR Incurred LR
2004 $1,485 $796 $807 33.5% 33.1%
2005 $1,832 $919 $850 40.4% 53.5%
2006 $2,163 $1,074 $988 29.5% 29.0%
2007 $3,058 $1,647 $1,402 16.0% 20.5%
2008 $4,000 $2,209 $1,999 20.1% 23.3%
2009 $5,181 $3,049 $2,641 16.0% 20.7%
2010 $5,915 $3,223 $3,248 15.7% 17.3%
2011 $5,692 $3,450 $3,256 22.5% 24.7%
2012 $5,115 $2,870 $3,187 30.5% 30.8%
2004-12 $34,442 $19,238 $18,378 22.4% 25.3%
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CIEE Data Issues
QBE – Reported in CIEE Part 5, not part 4A. Gross written premiums reported incorrectly as
same as net written premiums.
Balboa – 2005 and 2006 Newport data identical, 2006 Meritplan data not reported
Zurich – No data reported for Empire Fire & Marine, Empire Indemnity, Empire IC, Fidelity &
Deposit
American Modern Home – No data reported (2012 CA rate filing show $29 million, $23 million
and $11 million LPI written premium in 2009, 2010 and 2011, respectively)
Great American – No data reported (2012 CA rate filing shows $8 to $ 12 written premium
annually, 2008 to 2011)
Lloyds – No Data reported
Two LPI Markets
Assurant and QBE/Balboa with Largest Mortgage Servicers
Managing General Agents / Managing General Underwriters with Remaining Mortgage
Servicers
Birnbaum LPI Overview
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June 13, 2013
LPI Net Written Premium Reported in CIEE by Insurer Group, 2004 2012 ($ Millions)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-2012
Assurant $542.9 $640.6 $851.1 $1,219.2 $1,640.1 $1,744.8 $1,810.4 $2,021.9 $2,186.4 $12,657.5
Amer Bankers FL $50.7 $52.4 $51.3 $36.0 $36.5 $34.3 $32.3 $29.9 $31.1 $354.4
Amer Reliable $6.1 $11.2 $13.3 $25.3 $55.9
Amer Security $416.1 $508.7 $709.9 $1,078.9 $1,495.4 $1,586.7 $1,636.3 $1,713.7 $1,847.0 $10,992.9
Standard Guaranty $70.4 $75.0 $85.3 $104.5 $108.1 $110.2 $116.0 $141.9 $144.7 $956.1
Voyager IC $5.8 $4.5 $4.6 ($0.1) ($0.0) $7.5 $14.6 $123.1 $138.2 $298.2
Balboa $237.1 $242.1 $209.7 $418.3 $550.6 $1,138.4 $1,060.3 $1,112.8 $355.5 $5,324.8
Balboa IC $141.1 $134.7 $127.4 $185.5 $281.9 $732.3 $678.0 $653.7 $238.0 $3,172.7
Meritplan IC $16.5 $25.1 $72.8 $47.1 $422.6 $375.5 $454.5 $117.4 $1,531.5
Newport IC $79.4 $82.3 $82.3 $160.0 $221.7 ($16.6) $6.8 $4.5 $0.1 $620.6
QBE $12.6 $155.1 $341.8 $305.9 $310.4 $1,125.8
QBE Ins Corp $12.1 $28.8 $87.2 $78.7 $143.4 $350.2
QBE Specialty $0.5 $126.3 $254.6 $227.1 $167.0 $775.6
Zurich $2.0 $1.7 $1.8 $3.5 $4.5 $4.7 $4.3 $3.3 $11.2 $37.1
Yosemite IC $2.0 $1.7 $1.8 $3.5 $4.5 $4.7 $4.3 $3.3 $11.2 $37.1
Ace $9.5 $8.6 $9.9 $5.1 $33.1
Arch $3.7 $3.8 $3.1 $4.1 $14.7
Life of South $10.0 $13.2 $1.0 $1.0 $1.5 $1.6 $2.2 $2.2 $2.1 $34.8
Total $796.2 $918.7 $1,074.4 $1,647.1 $2,209.3 $3,048.9 $3,223.3 $3,449.8 $2,870.1 $19,237.8
Birnbaum LPI Overview
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June 13, 2013
LPI Net Written Premium Market Share Reported in CIEE by Insurer Group, 2004 2012
2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-2012
Assurant 68.2% 69.7% 79.2% 74.0% 74.2% 57.2% 56.2% 58.6% 76.2% 65.8%
Balboa 29.8% 26.4% 19.5% 25.4% 24.9% 37.3% 32.9% 32.3% 12.4% 27.7%
QBE 0.6% 5.1% 10.6% 8.9% 10.8% 5.9%
Zurich 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.1% 0.1% 0.4% 0.2%
Ace 1.2% 0.9% 0.9% 0.3% 0.2%
Arch 0.1% 0.1% 0.1% 0.1% 0.1%
Life of South 1.3% 1.4% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.2%
Birnbaum LPI Overview
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June 13, 2013
13. LPI by State
The graph below shows the largest states by percentage of total countrywide LPI premiums from
2004 to 2012. Over the past five years, the largest state for LPI premiums, by far, has been
Florida. The tables that follow list LPI premium by state and state share of countrywide LPI
premium.
Figure 1
Top States by Share of LPI Premium, 2004 – 2012
.
0%
5%
10%
15%
20%
25%
30%
35%
2004 2005 2006 2007 2008 2009 2010 2011 2012
FL CA TX NY IL
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June 13, 2013
LPI NWP b
y
State, 2004-2012 ($ Millions)
State 2004 2005 2006 2007 2008 2009 2010 2011 2012
FL $84.2 $99.3 $142.8 $294.7 $506.9 $1,046.6 $1,184.1 $1,211.3 $981.0
CA $165.8 $177.1 $227.3 $387.5 $536.1 $425.4 $356.4 $352.3 $198.4
NY $28.8 $32.7 $48.2 $72.4 $95.9 $143.7 $174.5 $194.2 $188.1
TX $84.7 $98.5 $94.5 $143.1 $153.7 $170.7 $180.4 $210.7 $172.9
NJ $22.9 $25.1 $31.1 $44.4 $60.5 $86.9 $111.0 $136.6 $149.9
IL $23.6 $30.3 $42.1 $60.3 $87.2 $133.1 $131.5 $158.3 $128.6
OH $28.8 $34.5 $37.7 $44.2 $53.5 $66.8 $73.3 $100.8 $123.9
GA $26.7 $29.1 $34.8 $39.1 $49.9 $69.4 $74.1 $80.3 $60.1
PA $20.6 $24.2 $28.8 $29.0 $38.8 $54.6 $54.3 $62.1 $58.7
NC $18.8 $21.7 $22.0 $22.8 $28.5 $48.5 $51.8 $65.3 $55.4
WA $9.9 $10.1 $11.0 $13.7 $19.1 $30.8 $37.4 $41.2 $47.6
MD $10.7 $11.9 $13.0 $21.4 $28.8 $41.1 $36.5 $42.9 $45.2
LA $20.5 $25.0 $12.6 $19.1 $25.2 $40.4 $52.7 $54.4 $44.0
MI $33.2 $40.3 $47.6 $96.3 $78.9 $81.5 $70.9 $68.5 $42.1
VA $9.6 $11.9 $13.9 $24.9 $27.1 $33.5 $39.2 $38.3 $39.6
AL $16.0 $16.0 $17.3 $20.2 $25.0 $33.2 $37.2 $37.9 $37.1
IN $15.0 $18.3 $19.9 $23.7 $30.8 $41.2 $42.8 $52.4 $36.7
MA $6.9 $9.3 $13.5 $21.6 $25.9 $37.2 $37.2 $37.9 $35.2
TN $17.5 $21.3 $22.8 $23.9 $28.6 $37.1 $38.3 $44.5 $32.2
SC $20.6 $26.9 $21.5 $19.7 $22.6 $32.1 $31.2 $36.3 $31.8
MO $15.0 $14.2 $15.7 $18.9 $22.7 $31.7 $31.6 $33.8 $23.7
MS $10.1 $12.8 $13.8 $12.4 $17.2 $24.3 $24.6 $29.3 $23.3
AZ $11.8 $12.2 $15.5 $27.7 $39.8 $47.2 $43.0 $31.3 $22.3
CT $5.2 $6.1 $8.0 $11.0 $14.6 $21.6 $21.4 $26.6 $22.2
OK $9.3 $9.6 $9.7 $11.0 $14.1 $18.1 $20.5 $23.4 $21.6
UT $4.1 $3.9 $3.3 $5.1 $7.5 $11.6 $10.3 $23.5 $21.2
NV $5.1 $6.4 $9.1 $18.3 $24.7 $32.2 $35.3 $25.1 $20.9
WI $4.4 $6.1 $8.0 $10.6 $15.2 $21.3 $22.3 $22.7 $19.6
KY $8.4 $14.2 $9.2 $9.4 $11.5 $16.9 $17.0 $21.2 $18.5
CO $10.6 $12.2 $14.1 $19.8 $18.0 $24.6 $25.3 $23.3 $18.5
OR $5.1 $5.2 $5.1 $7.1 $10.2 $17.1 $16.6 $18.0 $18.1
AR $7.0 $7.1 $7.4 $7.3 $8.8 $12.4 $13.2 $15.0 $16.4
MN $6.4 $7.6 $11.6 $17.8 $22.0 $22.9 $22.6 $19.4 $15.0
NM $4.7 $5.0 $4.7 $5.6 $7.4 $10.7 $13.1 $13.8 $13.0
HI $1.2 $1.8 $2.2 $3.6 $3.5 $8.1 $10.1 $10.8 $11.1
RI $1.2 $1.7 $2.5 $5.0 $5.8 $8.7 $7.8 $8.9 $8.2
KS $3.4 $4.1 $4.6 $4.8 $5.8 $8.4 $8.7 $9.6 $7.9
ME $1.3 $1.5 $1.9 $2.7 $3.8 $6.4 $6.9 $8.6 $7.6
IA $2.3 $3.0 $3.3 $3.9 $4.8 $7.1 $7.5 $8.5 $6.8
NH $1.2 $1.7 $2.1 $2.9 $3.8 $5.7 $7.0 $7.0 $6.7
DE $2.0 $4.5 $6.0 $2.9 $3.9 $5.8 $6.5 $7.6 $6.1
WV $2.9 $4.4 $4.2 $3.2 $4.6 $5.9 $6.1 $6.5 $5.9
ID $1.5 $1.7 $1.6 $2.8 $4.0 $6.7 $6.5 $5.5 $5.4
DC $2.1 $2.0 $2.4 $3.4 $3.8 $4.3 $4.7 $4.6 $4.4
NE $1.3 $2.2 $2.0 $2.5 $3.1 $3.6 $4.0 $4.4 $3.8
VT $0.5 $0.6 $0.6 $0.8 $1.0 $1.8 $2.2 $2.6 $2.5
MT $0.9 $0.7 $0.7 $1.0 $1.1 $2.6 $3.1 $3.0 $2.4
AK $0.8 $0.7 $0.6 $1.2 $1.2 $1.8 $1.9 $1.7 $2.2
SD $0.6 $0.7 $0.7 $0.8 $1.0 $1.7 $1.6 $1.8 $1.7
WY $0.7 $0.6 $0.5 $1.0 $0.8 $1.2 $1.7 $1.5 $1.4
OT $0.0 $0.0 $0.0 $0.0 $0.0 $1.0 $3.3 $2.3 $1.0
PR $0.1 $0.2 $0.3 $0.0 $0.0 $0.0 $0.0 $1.5 $0.9
ND $0.3 $0.3 $0.3 $0.4 $0.4 $0.7 $0.7 $0.7 $0.8
VI $0.0 $0.2 $0.3 $0.0 $0.0 $0.0 $0.0 $0.4 $0.5
GU $0.0 $0.0 $0.0 $0.3 $0.3 $0.2 $0.5 $0.1 $0.0
AS $0.0 $0.0 $0.0 $0.3 $0.2 $0.6 $0.9 $0.0 $0.0
US $796.2 $918.7 $1,074.4 $1,647.1 $2,209.3 $3,048.9 $3,223.3 $3,449.8 $2,870.1
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June 13, 2013
LPI NWP Market Share b
y
State, 2004-2012 ($ Millions)
State 2004 2005 2006 2007 2008 2009 2010 2011 2012
FL 10.6% 10.8% 13.3% 17.9% 22.9% 34.3% 36.7% 35.1% 34.2%
CA 20.8% 19.3% 21.2% 23.5% 24.3% 14.0% 11.1% 10.2% 6.9%
NY 3.6% 3.6% 4.5% 4.4% 4.3% 4.7% 5.4% 5.6% 6.6%
TX 10.6% 10.7% 8.8% 8.7% 7.0% 5.6% 5.6% 6.1% 6.0%
NJ 2.9% 2.7% 2.9% 2.7% 2.7% 2.9% 3.4% 4.0% 5.2%
IL 3.0% 3.3% 3.9% 3.7% 3.9% 4.4% 4.1% 4.6% 4.5%
OH 3.6% 3.8% 3.5% 2.7% 2.4% 2.2% 2.3% 2.9% 4.3%
GA 3.4% 3.2% 3.2% 2.4% 2.3% 2.3% 2.3% 2.3% 2.1%
PA 2.6% 2.6% 2.7% 1.8% 1.8% 1.8% 1.7% 1.8% 2.0%
NC 2.4% 2.4% 2.0% 1.4% 1.3% 1.6% 1.6% 1.9% 1.9%
WA 1.2% 1.1% 1.0% 0.8% 0.9% 1.0% 1.2% 1.2% 1.7%
MD 1.3% 1.3% 1.2% 1.3% 1.3% 1.3% 1.1% 1.2% 1.6%
LA 2.6% 2.7% 1.2% 1.2% 1.1% 1.3% 1.6% 1.6% 1.5%
MI 4.2% 4.4% 4.4% 5.8% 3.6% 2.7% 2.2% 2.0% 1.5%
VA 1.2% 1.3% 1.3% 1.5% 1.2% 1.1% 1.2% 1.1% 1.4%
AL 2.0% 1.7% 1.6% 1.2% 1.1% 1.1% 1.2% 1.1% 1.3%
IN 1.9% 2.0% 1.9% 1.4% 1.4% 1.4% 1.3% 1.5% 1.3%
MA 0.9% 1.0% 1.3% 1.3% 1.2% 1.2% 1.2% 1.1% 1.2%
TN 2.2% 2.3% 2.1% 1.5% 1.3% 1.2% 1.2% 1.3% 1.1%
SC 2.6% 2.9% 2.0% 1.2% 1.0% 1.1% 1.0% 1.1% 1.1%
MO 1.9% 1.5% 1.5% 1.1% 1.0% 1.0% 1.0% 1.0% 0.8%
MS 1.3% 1.4% 1.3% 0.7% 0.8% 0.8% 0.8% 0.8% 0.8%
AZ 1.5% 1.3% 1.4% 1.7% 1.8% 1.5% 1.3% 0.9% 0.8%
CT 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.8% 0.8%
OK 1.2% 1.1% 0.9% 0.7% 0.6% 0.6% 0.6% 0.7% 0.8%
UT 0.5% 0.4% 0.3% 0.3% 0.3% 0.4% 0.3% 0.7% 0.7%
NV 0.6% 0.7% 0.8% 1.1% 1.1% 1.1% 1.1% 0.7% 0.7%
WI 0.6% 0.7% 0.7% 0.6% 0.7% 0.7% 0.7% 0.7% 0.7%
KY 1.1% 1.5% 0.9% 0.6% 0.5% 0.6% 0.5% 0.6% 0.6%
CO 1.3% 1.3% 1.3% 1.2% 0.8% 0.8% 0.8% 0.7% 0.6%
OR 0.6% 0.6% 0.5% 0.4% 0.5% 0.6% 0.5% 0.5% 0.6%
AR 0.9% 0.8% 0.7% 0.4% 0.4% 0.4% 0.4% 0.4% 0.6%
MN 0.8% 0.8% 1.1% 1.1% 1.0% 0.8% 0.7% 0.6% 0.5%
NM 0.6% 0.5% 0.4% 0.3% 0.3% 0.4% 0.4% 0.4% 0.5%
HI 0.1% 0.2% 0.2% 0.2% 0.2% 0.3% 0.3% 0.3% 0.4%
RI 0.2% 0.2% 0.2% 0.3% 0.3% 0.3% 0.2% 0.3% 0.3%
KS 0.4% 0.4% 0.4% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3%
ME 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.3%
IA 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
NH 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
DE 0.3% 0.5% 0.6% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
WV 0.4% 0.5% 0.4% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
ID 0.2% 0.2% 0.1% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%
DC 0.3% 0.2% 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.2%
NE 0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
VT 0.1% 0.1% 0.1% 0.1% 0.0% 0.1% 0.1% 0.1% 0.1%
MT 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
AK 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% 0.1%
SD 0.1% 0.1% 0.1% 0.0% 0.0% 0.1% 0.1% 0.1% 0.1%
WY 0.1% 0.1% 0.0% 0.1% 0.0% 0.0% 0.1% 0.0% 0.0%
OT 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.0%
PR 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ND 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
VI 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
GU 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
AS 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
US 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
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June 13, 2013
14. LPI Loss Ratios
Why are LPI rates and premium charges so much greater than homeowners insurance?
Industry argues:
Lack of individual underwriting, take-all-comers means LPI is much riskier than
homeowners insurance for which the voluntary insurer can underwrite and reject
individual properties.
LPI exposures are concentrated in cat-prone areas and, consequently, more susceptible to
catastrophe losses.
LPI expenses are greater than expenses for homeowners insurance because of the special
activities associated with administering an LPI policy.
LPI expenses are greater than expenses for homeowners because many or most LPI
coverages are canceled before the full term of coverage.
If these arguments are true, we would expect to see higher loss ratios for LPI than homeowners
insurance. With average LPI premiums twice that of average homeowners insurance, the same
percentage for expenses produces twice as many expense dollars. We would not expect twice as
many expense dollars for LPI than for homeowners since there is no individual property
underwriting – which means no expenses for property inspection, obtaining credit histories,
CLUE (claims history reports), obtaining information from the policyholder about the amount
and types of coverages as well as other acquisition expenses not found with LPI.
So, if we assume LPI poses greater risk and, consequently, produces greater claims and the
expense percentage of LPI is less than the expense percentage of homeowners – even with the
lower LPI expense percentage producing more expense dollars per covered property – we would
expect that claim payments for LPI would be a greater percentage of premium than they are for
homeowners insurance. Stated differently, based on the industry explanation for higher LPI
rates, we would expect higher LPI loss ratios than homeowners loss ratios. And we would also
expect greater volatility in LPI loss ratios than homeowners loss ratios if LPI is more
susceptibility to catastrophe events.
The loss ratio results from 2004 through 2012 show LPI loss ratios have been far less than
homeowners loss ratios.
Birnbaum LPI Overview
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June 13, 2013
Loss Ratios for Homeowners and LPI, All States, 2004-2012
Year Homeowners LPI Home
2004 66.0% 33.1%
2005 75.2% 53.5%
2006 48.2% 29.0%
2007 50.4% 20.5%
2008 70.7% 23.3%
2009 59.3% 20.7%
2010 60.5% 17.3%
2011 75.4% 24.7%
2012 60.4% 30.8%
2004-2012 63.0% 25.3%
Loss Ratios for Homeowners and LPI, All States, 2004-2012
0%
20%
40%
60%
80%
Homeowners LPIHome
Birnbaum LPI Overview
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June 13, 2013
The table below shows that in Florida – the state with the greatest catastrophe risk and the
largest amount of LPI premium – LPI loss ratios were far less than homeowners loss ratios in
years with and without catastrophe events. The table also shows homeowners and LPI loss ratios
for all states except Florida. Again, the LPI loss ratios are far below the homeowners loss ratios.
Of particular note are the years 2011 and 2012. While the homeowners loss ratio jumped in
2011 because of major catastrophe events, the LPI loss ratio remained low in 2011. And in
2012, the year of Superstorm Sandy, despite flood being covered by LPI but not by homeowners
insurance, the LPI loss ratio remained far below the homeowners loss ratio.
Homeowners and LPI Loss Ratios, Florida Only and All States Ex Florida, 2004-12
FL HO FL LPI
All State
Ex FL HO
All States
EX FL LPI
2004 303.0% 75.2% 52.2% 28.0%
2005 153.6% 102.5% 60.2% 47.9%
2006 32.6% 29.6% 58.7% 28.9%
2007 25.6% 11.4% 63.0% 22.2%
2008 33.9% 10.6% 86.6% 26.7%
2009 38.4% 11.7% 72.5% 24.7%
2010 38.1% 7.2% 72.5% 23.1%
2011 35.9% 9.9% 90.8% 32.6%
2012 31.6% 13.3% 72.2% 40.3%
2004-2012 61.4% 13.6% 70.9% 30.0%
The chart on the following page shows LPI loss ratios by state from 2004 through 2012.
Birnbaum LPI Overview
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June 13, 2013
LPI Incurred Loss Ratios by State, 2004-2012
(sorted by state)
State 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-12
AK 8.4% 19.1% 23.8% 17.2% 42.1% 14.5% 7.5% 12.9% 36.9% 20.3%
AL 70.9% 67.7% 26.3% 34.3% 34.9% 32.3% 34.7% 75.7% 36.7% 45.5%
AR 33.1% 35.9% 39.2% 25.6% 69.3% 41.7% 31.6% 62.8% 42.1% 43.2%
AZ 19.3% 10.0% 12.1% 12.9% 13.1% 15.1% 26.0% 58.2% 28.8% 24.0%
CA 29.7% 35.9% 35.6% 18.9% 18.4% 19.7% 10.8% 21.3% 21.4% 21.2%
CO 24.5% 19.3% 10.4% 9.6% 14.6% 20.5% 20.8% 24.6% 37.4% 20.8%
CT 30.1% 34.3% 16.4% 25.6% 27.5% 36.7% 25.0% 46.6% 47.9% 35.4%
DC 6.5% 13.6% 14.9% 19.1% 10.3% 6.0% 11.7% 20.0% 18.2% 13.6%
DE 24.2% 20.6% 17.9% 10.6% 23.8% 26.0% 29.8% -168.0% 283.8% 28.4%
FL 75.2% 102.5% 29.6% 11.4% 10.6% 11.7% 7.2% 9.9% 13.3% 13.6%
GA 20.5% 25.4% 21.6% 22.2% 33.9% 36.2% 34.6% 40.1% 34.1% 32.1%
HI 5.0% 9.7% 2.6% 5.3% 17.9% 5.6% 9.9% 4.9% 6.9% 7.5%
IA 30.8% 22.8% 23.0% 20.0% 81.3% 8.5% 25.1% 45.4% 26.1% 31.4%
ID 12.8% 2.8% 9.6% 5.2% 17.6% 24.5% 15.5% 26.6% 11.6% 16.6%
IL 32.0% 26.3% 34.5% 24.2% 31.2% 29.2% 27.1% 25.2% 37.8% 29.8%
IN 37.6% 41.8% 51.3% 32.2% 47.1% 26.5% 28.7% 37.6% 51.7% 38.8%
KS 29.3% 19.3% 49.4% 42.5% 41.0% 47.6% 35.7% 57.8% 47.5% 43.4%
KY 26.5% 26.5% 34.3% 29.1% 33.6% 35.1% 31.3% 37.7% 50.6% 35.4%
LA 10.3% 498.2% 43.4% 66.9% 126.1% 22.8% 20.0% 29.8% 61.7% 82.1%
MA 14.7% 9.6% 19.5% 28.4% 16.3% 17.3% 25.1% 38.0% 27.0% 24.5%
MD 21.2% 16.1% 13.5% 13.4% 11.4% 16.0% 20.7% 24.4% 24.9% 19.2%
ME 57.4% 27.9% 16.4% 32.3% 32.9% 26.9% 30.5% 35.2% 27.8% 31.0%
MI 42.7% 42.3% 49.2% 35.1% 42.0% 37.7% 43.4% 45.5% 54.3% 42.8%
MN 27.2% 35.8% 29.8% 24.6% 22.5% 19.5% 22.4% 27.1% 25.2% 24.6%
MO 32.0% 29.1% 44.9% 42.4% 46.3% 35.5% 29.4% 60.1% 58.8% 43.4%
MS 43.6% 299.9% 81.6% 46.7% 39.1% 35.6% 32.0% 47.6% 41.6% 62.3%
MT 24.1% 1.7% 26.1% 9.3% 26.8% 19.2% 27.8% 27.7% 33.0% 24.8%
NC 17.1% 19.3% 15.9% 17.2% 18.7% 16.9% 17.7% 39.0% 24.4% 22.7%
ND 42.4% 60.8% 65.9% 43.3% 49.9% 70.0% 41.7% 90.3% 18.0% 52.5%
NE 49.1% 39.6% 30.6% 27.4% 46.4% 26.8% 35.2% 42.8% 40.2% 37.4%
NH 16.2% 15.9% 16.3% 32.9% 20.7% 30.3% 29.4% 22.9% 23.6% 24.9%
NJ 21.8% 25.5% 21.4% 17.1% 19.1% 15.7% 18.7% 33.5% 51.9% 29.5%
NM 23.5% 28.4% 19.2% 27.1% 24.4% 14.6% 23.7% 34.4% 33.2% 26.4%
NV 6.7% 9.4% 11.4% 7.3% 8.7% 12.5% 9.6% 20.3% 15.5% 12.3%
NY 30.8% 23.3% 25.5% 18.9% 14.8% 34.0% 21.4% 23.6% 78.9% 35.4%
OH 34.5% 40.4% 33.2% 33.1% 34.5% 24.8% 28.1% 30.2% 28.8% 30.6%
OK 31.4% 27.7% 21.7% 39.5% 28.2% 39.2% 72.1% 55.8% 58.2% 46.5%
OR 40.6% 4.6% 7.2% 11.3% 16.1% 21.2% 14.9% 13.9% 18.2% 16.7%
PA 35.1% 32.3% 31.1% 21.5% 17.8% 21.2% 25.8% 33.9% 32.9% 28.0%
RI 23.9% 23.7% 16.9% 19.3% 32.8% 22.5% 24.1% 30.5% 35.5% 27.4%
SC 19.4% 22.2% 19.0% 26.1% 20.4% 23.3% 24.6% 31.5% 37.0% 25.7%
SD 17.5% 15.0% 30.3% 27.9% 24.9% 28.1% 66.2% 42.6% 33.6% 35.9%
TN 34.1% 17.5% 32.4% 26.4% 34.0% 28.5% 53.0% 66.4% 56.3% 42.4%
TX 20.4% 26.2% 11.7% 13.4% 38.8% 28.2% 22.4% 29.0% 25.8% 25.1%
UT 12.3% 14.7% 15.4% 9.2% 6.2% 12.7% 13.5% 29.2% 14.9% 17.2%
VA 19.7% 15.2% 22.7% 3.7% 12.1% 15.3% 18.1% 17.6% 18.5% 15.9%
VT 5.0% 50.9% -3.9% 26.5% 51.8% 35.0% 26.9% 54.5% 46.3% 38.4%
WA 17.4% 14.6% 15.1% 13.2% 14.9% 20.1% 16.8% 19.2% 19.4% 17.7%
WI 35.7% 16.8% 20.6% 16.0% 34.7% 30.1% 28.1% 192.4% 163.1% 81.1%
WV 41.3% 18.9% 23.2% 29.3% 25.2% 26.3% 37.1% 32.1% 31.6% 29.8%
WY 12.5% 14.1% 18.3% 22.5% 12.2% 19.6% 32.9% 42.8% 19.2% 24.4%
US 33.1% 53.5% 29.0% 20.5% 23.3% 20.7% 17.3% 24.7% 30.8% 25.3%
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June 13, 2013
LPI Incurred Loss Ratios by State, 2004-2012
(sorted by earned premium)
State 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004-12
FL 75.2% 102.5% 29.6% 11.4% 10.6% 11.7% 7.2% 9.9% 13.3% 13.6%
CA 29.7% 35.9% 35.6% 18.9% 18.4% 19.7% 10.8% 21.3% 21.4% 21.2%
TX 20.4% 26.2% 11.7% 13.4% 38.8% 28.2% 22.4% 29.0% 25.8% 25.1%
NY 30.8% 23.3% 25.5% 18.9% 14.8% 34.0% 21.4% 23.6% 78.9% 35.4%
NJ 21.8% 25.5% 21.4% 17.1% 19.1% 15.7% 18.7% 33.5% 51.9% 29.5%
IL 32.0% 26.3% 34.5% 24.2% 31.2% 29.2% 27.1% 25.2% 37.8% 29.8%
OH 34.5% 40.4% 33.2% 33.1% 34.5% 24.8% 28.1% 30.2% 28.8% 30.6%
GA 20.5% 25.4% 21.6% 22.2% 33.9% 36.2% 34.6% 40.1% 34.1% 32.1%
NC 17.1% 19.3% 15.9% 17.2% 18.7% 16.9% 17.7% 39.0% 24.4% 22.7%
PA 35.1% 32.3% 31.1% 21.5% 17.8% 21.2% 25.8% 33.9% 32.9% 28.0%
MI 42.7% 42.3% 49.2% 35.1% 42.0% 37.7% 43.4% 45.5% 54.3% 42.8%
LA 10.3% 498.2% 43.4% 66.9% 126.1% 22.8% 20.0% 29.8% 61.7% 82.1%
IN 37.6% 41.8% 51.3% 32.2% 47.1% 26.5% 28.7% 37.6% 51.7% 38.8%
MD 21.2% 16.1% 13.5% 13.4% 11.4% 16.0% 20.7% 24.4% 24.9% 19.2%
WA 17.4% 14.6% 15.1% 13.2% 14.9% 20.1% 16.8% 19.2% 19.4% 17.7%
VA 19.7% 15.2% 22.7% 3.7% 12.1% 15.3% 18.1% 17.6% 18.5% 15.9%
TN 34.1% 17.5% 32.4% 26.4% 34.0% 28.5% 53.0% 66.4% 56.3% 42.4%
AL 70.9% 67.7% 26.3% 34.3% 34.9% 32.3% 34.7% 75.7% 36.7% 45.5%
MA 14.7% 9.6% 19.5% 28.4% 16.3% 17.3% 25.1% 38.0% 27.0% 24.5%
SC 19.4% 22.2% 19.0% 26.1% 20.4% 23.3% 24.6% 31.5% 37.0% 25.7%
MO 32.0% 29.1% 44.9% 42.4% 46.3% 35.5% 29.4% 60.1% 58.8% 43.4%
AZ 19.3% 10.0% 12.1% 12.9% 13.1% 15.1% 26.0% 58.2% 28.8% 24.0%
MS 43.6% 299.9% 81.6% 46.7% 39.1% 35.6% 32.0% 47.6% 41.6% 62.3%
CT 30.1% 34.3% 16.4% 25.6% 27.5% 36.7% 25.0% 46.6% 47.9% 35.4%
OK 31.4% 27.7% 21.7% 39.5% 28.2% 39.2% 72.1% 55.8% 58.2% 46.5%
NV 6.7% 9.4% 11.4% 7.3% 8.7% 12.5% 9.6% 20.3% 15.5% 12.3%
UT 12.3% 14.7% 15.4% 9.2% 6.2% 12.7% 13.5% 29.2% 14.9% 17.2%
WI 35.7% 16.8% 20.6% 16.0% 34.7% 30.1% 28.1% 192.4% 163.1% 81.1%
CO 24.5% 19.3% 10.4% 9.6% 14.6% 20.5% 20.8% 24.6% 37.4% 20.8%
KY 26.5% 26.5% 34.3% 29.1% 33.6% 35.1% 31.3% 37.7% 50.6% 35.4%
OR 40.6% 4.6% 7.2% 11.3% 16.1% 21.2% 14.9% 13.9% 18.2% 16.7%
AR 33.1% 35.9% 39.2% 25.6% 69.3% 41.7% 31.6% 62.8% 42.1% 43.2%
MN 27.2% 35.8% 29.8% 24.6% 22.5% 19.5% 22.4% 27.1% 25.2% 24.6%
NM 23.5% 28.4% 19.2% 27.1% 24.4% 14.6% 23.7% 34.4% 33.2% 26.4%
HI 5.0% 9.7% 2.6% 5.3% 17.9% 5.6% 9.9% 4.9% 6.9% 7.5%
KS 29.3% 19.3% 49.4% 42.5% 41.0% 47.6% 35.7% 57.8% 47.5% 43.4%
RI 23.9% 23.7% 16.9% 19.3% 32.8% 22.5% 24.1% 30.5% 35.5% 27.4%
ME 57.4% 27.9% 16.4% 32.3% 32.9% 26.9% 30.5% 35.2% 27.8% 31.0%
DE 24.2% 20.6% 17.9% 10.6% 23.8% 26.0% 29.8% -168.0% 283.8% 28.4%
IA 30.8% 22.8% 23.0% 20.0% 81.3% 8.5% 25.1% 45.4% 26.1% 31.4%
NH 16.2% 15.9% 16.3% 32.9% 20.7% 30.3% 29.4% 22.9% 23.6% 24.9%
WV 41.3% 18.9% 23.2% 29.3% 25.2% 26.3% 37.1% 32.1% 31.6% 29.8%
ID 12.8% 2.8% 9.6% 5.2% 17.6% 24.5% 15.5% 26.6% 11.6% 16.6%
DC 6.5% 13.6% 14.9% 19.1% 10.3% 6.0% 11.7% 20.0% 18.2% 13.6%
NE 49.1% 39.6% 30.6% 27.4% 46.4% 26.8% 35.2% 42.8% 40.2% 37.4%
MT 24.1% 1.7% 26.1% 9.3% 26.8% 19.2% 27.8% 27.7% 33.0% 24.8%
VT 5.0% 50.9% -3.9% 26.5% 51.8% 35.0% 26.9% 54.5% 46.3% 38.4%
AK 8.4% 19.1% 23.8% 17.2% 42.1% 14.5% 7.5% 12.9% 36.9% 20.3%
SD 17.5% 15.0% 30.3% 27.9% 24.9% 28.1% 66.2% 42.6% 33.6% 35.9%
WY 12.5% 14.1% 18.3% 22.5% 12.2% 19.6% 32.9% 42.8% 19.2% 24.4%
ND 42.4% 60.8% 65.9% 43.3% 49.9% 70.0% 41.7% 90.3% 18.0% 52.5%
US 33.1% 53.5% 29.0% 20.5% 23.3% 20.7% 17.3% 24.7% 30.8% 25.3%
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June 13, 2013
15. Reverse Competition
Reverse competition describes a market structure in which consumers/borrowers exert little or no
market power over prices. Instead of competing for individual consumers, insurers compete for
the entities with the market power to steer the ultimate consumer to the insurer. Insurers
compete for the servicer’s business by providing considerations to the servicer, with the cost of
such considerations passed on to the borrower. Greater competition for the lender’s business
leads to higher prices of credit-related insurance, including LPI, to the borrower. This form of
competition, which results in higher prices to consumers, is called reverse competition.
The term "reverse competition” was used as early as 1977 in a report by the Department of
Justice describing the title insurance market:
In other words, competition in the title insurance business is directed at the producer of
the business rather than the consumer. A title company wishing to increase its market
share would not necessarily try to reduce prices or improve coverages in order to attract
retail purchasers of title insurance. Rather, the company would seek to influence those
brokers, bankers and attorneys who are in a position to direct the title insurance business
to it. The most direct manner of influencing this is to grant the producer of the business a
fee, commission, rebate, or kickback – to the detriment of the title insurance purchaser.
This is the phenomenon of reverse competition.
The presence of reverse competition in the title insurance industry has resulted in “a long
history of such anti-competitive practices as fixed fees, forced (tied) sales and
kickbacks.” Reverse competition as the effect of raising the cost of title insurance, for the
higher the cost of the insurance, the larger the referral commission or kickback to the
business producer and the more business a title insurer is likely to have.
The NAIC Credit Personal Property Model Act defines reverse competition:
“Reverse competition” means competition among insurers that regularly takes the form
of insurers vying with each other for the favor of persons who control, or may control, the
placement of the insurance with insurers. Reverse competition tends to increase insurance
premiums or prevent the lowering of premiums in order that greater compensation may
be paid to persons for such business as a means of obtaining the placement of business. In
these situations, the competitive pressure to obtain business by paying higher
compensation to these persons overwhelms any downward pressures consumers may
exert on the price of insurance, thus causing prices to rise or remain higher than they
would otherwise.
We see the effects of reverse competition in LPI markets with variety of considerations offered
by LPI vendors to the mortgage servicers – considerations which are not related to the provision
of LPI but the expenses for which are included in LPI charges to borrowers and investors. The
considerations from LPI vendors to mortgage servicers or affiliates of the mortgage servicers
have taken the following form:
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June 13, 2013
1. Commissions to servicer-affiliated agents
2. Captive reinsurance arrangements
3. Free or below-cost services not related to the provision of LPI, such as insurance tracking
and other insurance outsourcing services
4. Cash payments
5. Profits from an LPI insurance company affiliated with the mortgage servicer
In October 2011, the New York Department of Financial Services (NYDFS) launched an
investigation into the force-placed insurance industry and conducted public hearings in May
2012. The NYDFS investigation revealed
3
:
The premiums charged to homeowners for force-placed insurance are two to ten times
higher than premiums for voluntary insurance, even though the scope of the coverage is
more limited.
The loss ratios for force-placed insurance seldom exceed 25 percent. Nevertheless, rate
filings made by insurers with DFS reflected loss ratio estimates of 55 to 58 percent.
Insurers and banks have built a network of relationships and financial arrangements that
have driven premium rates to inappropriately high levels ultimately paid for by
consumers and investors.
Force-placed insurers have competed for business from banks and mortgage servicers
through “reverse competition”: i.e., rather than competing for business by offering
lower prices, insurers have created incentives for banks and mortgage servicers to buy
force-placed insurance with high premiums by enabling banks and mortgage services,
through complex arrangements, to share in the profits associated with the higher prices.
In a market characterized by reverse competition, smaller players and new entrants are at a
competitive disadvantage. In LPI, we see two LPI vendors with 90% or more of the market. In
title insurance, we see four title insurer groups with close to 90% of the market. Before the
financial crisis wiped out private mortgage insurers, that market was also heavily concentrated.
There are two basic approaches to dealing with reverse competition. One approach tries to
regulate the market – limits or prohibitions on certain types of kickbacks – but does not alter the
market power of lenders and servicers and, consequently, attempts to regulate against market
forces.
The second approach tries to harness market forces to produce more beneficial competition. An
example is the direct purchase of LPI by Fannie which creates a more competitive market
between buyers and sellers and removes the market power of servicers to command
consideration for selection of a particular LPI vendor.

3
April 5, 2013 letter from Superintendent Benjamin Lawsky to other state insurance regulators at
http://www.dfs.ny.gov/about/press2013/Force-Placed_Letter.pdf
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June 13, 2013
16. Recent Regulatory Activity Involving LPI
Foreclosure Abuse Settlements
In 2012, most state Attorneys General and the United States Department of Justice entered into
settlement agreements with several mortgage servicers. The settlement agreements included
requirements for LPI.
8. Any force-placed insurance policy must be purchased for a commercially reasonable
price.
National Association of Insurance Commissioners
NAIC Adopted the Creditor-Placed Insurance Model Act in 1996. Model does not apply to
“Insurance on collateralized real property.” Adopted by 3 states – AR, MI, MS. Model Act
strongly criticized by consumer groups
Public Hearing in August 2012 on LPI
In 2013 NAIC charges its Property Casualty Committee, chaired by Commissioner Mike Chaney
of Mississippi, to review the Model Act with options to amend the Model Act or withdraw it.
California Department of Insurance
In 2012, required LPI insurers to make new rate filings which resulted in:
American Security IC: -30.5%, $577 average reduction
QBE Insurance Corp: -35.0%, $626 average reduction
American Modern Home: -21.3% following an earlier reduction of -10.5%, $604
average reduction
Great American Assurance: -28.0%
Florida Office of Insurance Regulation
Approved filing for Praetorian IC to replace the programs of Balboa IC (admitted carrier) and
QBE Specialty IC (surplus lines carrier).
New filing reflects rate reduction:
-17.0% for Balboa and
-24.9% for QBE Specialty.
Average premium reduction of around $1,000
Held a public hearing in May 2013 on a new LPI rate filing from American Security Insurance
Company. The filing affects over 20% of all LPI written countrywide.
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June 13, 2013
New York Department of Financial Services
Investigation starting in 2011 leading to settlements with Assurant, QBE, Balboa and others in
2013.
Consumer Financial Protection Bureau Mortgage Servicing Rules, January 2013
Servicer must pay premium to keep voluntary policy in place if the borrower has an escrow
account;
Servicer may not charge for LPI unless specific notices sent at least 45 and 15 days before
borrower charged for FPI.
Except for charges subject to State regulation as the business of insurance and charges authorized
by the Flood Disaster Protection Act of 1973, all charges related to force-placed insurance
assessed to a borrower by or through the servicer must be bona fide and reasonable.
Fannie Mae and the Federal Housing Finance Authority
In March 2012, Fannie Mae issued new guidelines to servicers of Fannie loans, including
No commissions to servicer-affiliated agents
No LPI issued through surplus lines insurers
No insurance tracking expenses in LPI
In May 2012, Fannie stayed the implementation indefinitely.
In April 2013, Fannie retracted the new guidelines.
In March 2012, Fannie Mae also issued a request for proposal for insurance tracking and LPI
services with the intent of purchasing the services directly instead of reimbursing servicers.
In February 2013, FHFA stopped Fannie from implementing the direct purchase program.
In late March 2013, FHFA issued a request for comment on a proposal for Fannie and Freddie to
impose certain restrictions regarding LPI.
FDIC
Taking the lead on rules implementing LPI-related provisions of Biggart Watters Act
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June 13, 2013
17. Issues of Concern
1. Servicer Conflict of Interest if Servicer Has Financial Interest in Placement of LPI Other
Than Protection of Property Serving as Collateral for Covered Loan
2. Unreasonably High LPI Charges by Servicers to Borrowers / Charges Which Include
Amounts for Activities Unrelated to the Provision of LPI
3. Changes in NFIP / Potential for Big Increase in LPI Flood / Implementation of CFPB
Mortgage Servicing Rule Requiring Maintenance of Voluntary Policy if Loan Has Escrow
and Flood Insurance Requirement to Establish Escrow Account for Flood Insurance
4. Unnecessary Placement – Maintain Voluntary Policy When Possible, Including Non-
Escrowed Loans
5. “False” Placement / High Percentage of Flat Cancellations / Performance Standards for
Insurance Tracking
6. Lengthy / Unlimited Retroactive Billing
7. Poor Performance of State Insurance Regulators on LPI Rates and Kickback Schemes
8. LPI Placed through Surplus Lines Insurers
9. Schedule Rating
10. New Rating Factors
11. Standards for Determining Amount of Coverage and Type of Loss Settlement
12. Regulatory Gaps / Cooperation
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June 13, 2013
MPPP 1 OctOber 1, 2012
I. BACKGROUND
The Mortgage Portfolio Protection Program (MPPP) was
introduced on January 1, 1991, as an additional tool to
assist the mortgage lending and servicing industries in
bringing their mortgage portfolios into compliance with
the flood insurance requirements of the Flood Disaster
Protection Act of 1973.
The MPPP is not intended to act as a substitute for
the need for mortgagees to review all mortgage loan
applications at the time of loan origination and comply
with flood insurance requirements as appropriate.
Proper implementation of the mandatory purchase
requirements usually results in mortgagors, after their
notification of the need for flood insurance, either
showing evidence of such a policy, or contacting their
insurance agent/producer or their insurer to purchase
the necessary coverage. It is intended that flood
insurance policies be written under the MPPP only as a
last resort, and only on mortgages whose mortgagors
have failed to respond to the various notifications
required by the MPPP.
II. REQUIREMENTS FOR PARTICIPATING IN
THE MPPP
The following paragraphs represent the criteria and
requirements that must be followed by all parties
engaged in the sale of flood insurance under the
National Flood Insurance Program (NFIP) Mortgage
Portfolio Protection Program.
A. General
1. All mortgagors notified, in conjunction with this
program, of their need to purchase flood insurance
must be encouraged to obtain a Standard Flood
Insurance Policy (SFIP) from their agent/producer
or insurer.
2. When a mortgagee or a mortgage-servicing
company discovers, at any time following loan
origination, that there is no evidence of flood
insurance on a property in a Special Flood Hazard
Area (SFHA), then the MPPP may be used by such
lender/servicer to obtain (force-place) the required
flood insurance coverage. The MPPP process
MORTGAGE PORTFOLIO PROTECTION PROGRAM
MORTGAGE PORTFOLIO PROTECTION PROGRAM RATE AND
INCREASED COST OF COMPLIANCE (ICC) TABLE
1, 2
ZONE
MPPP RATES PER $100 OF
BUILDING COVERAGE
3
MPPP RATES PER $100 OF
CONTENTS COVERAGE
3
ICC PREMIUM FOR
$30,000 COVERAGE
4, 5
Emergency Program Community 4.32 4.36 N/A
A Zones – All building &
occupancy types,
except A99, AR, AR Dual Zones
4.32 / 2.19 4.36 / 2.10 $70
V Zones – All building &
occupancy types
6.43 / 6.43 6.04 / 6.04 $70
A99 Zone, AR, AR Dual Zones 1.12 / .67 1.49 / .60 $5
1 Add Federal Policy Fee and Probation Surcharge, if applicable, when computing the premium.
2 MPPP policies are not eligible for Community Rating System premium discounts.
3 Basic and additional insurance limits are shown in the Rating section.
4 ICC coverage does not apply to contents-only policies or to individually owned condominium units insured under the
Dwelling Form or General Property Form.
5 The ICC premium is not eligible for the deductible discount. First calculate the deductible discount, then add in the ICC premium.
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Birnbaum LPI Overview
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June 13, 2013
MPPP 2 May 1, 2011
can be accomplished with limited underwriting
information and with special flood insurance rates.
3. In the event of a loss, the policy will have to be
reformed if the wrong rate has been applied for
the zone in which the property is located. Also, the
amount of coverage may have to be changed if the
building occupancy does not support that amount.
4. It will be the Write Your Own (WYO) Company’s
responsibility to notify the mortgagor of all
coverage limitations at the inception of coverage
and to impose those limitations that are applicable
at the time of loss adjustment.
B. WYO Arrangement Article III – Fees
With the implementation of the MPPP, there is no
change in the method of WYO Company allowance
from that which is provided in the Financial Assistance/
Subsidy Arrangement for all flood insurance written.
C. Use of WYO Company Fees for Lenders/Servicers
or Others
1. No portion of the allowance that a WYO Company
retains under the WYO Financial Assistance/
Subsidy Arrangement for the MPPP may be used to
pay, reimburse, or otherwise remunerate a lending
institution, mortgage servicing company, or other
similar type of company that the WYO Company
may work with to assist in its flood insurance
compliance efforts.
2. The only exception to this is a situation where the
lender/servicer may be actually due a commission
on any flood insurance policies written on any
portion of the institution’s portfolio because it
was written through a licensed property insurance
agent/producer on their staff or through a licensed
insurance agency owned by the institution or
servicing company.
D. Notification
1. WYO Company/Mortgagee – Any WYO Company
participating in the MPPP must notify the lender
or servicer, for which it is providing the MPPP
capability, of the requirements of the MPPP. The
WYO Company must obtain signed evidence from
each such lender or servicer indicating their receipt
of this information, and keep a copy in its files.
2. Mortgagee to Mortgagor – In order to participate
in the MPPP, the lender (or its authorized
representative, which typically will be the WYO
Company providing the coverage through the
MPPP) must notify the borrower of the following, at
a minimum:
a. The requirements of the Flood Disaster
Protection Act of 1973;
b. The flood zone location of the borrower’s
property;
c. The requirement for flood insurance;
d. The fact that the lender has no evidence of the
borrower’s having flood insurance;
e. The amount of coverage being required and its
cost under the MPPP; and
f. The options of the borrower for obtaining
conventionally underwritten flood insurance
coverage and the potential cost benefits of
doing so.
A more detailed discussion of the notification
requirements is made a part of this program document
under “O. Policy Declarations Page Notification
Requirements” on page MPPP 3.
E. Eligibility
1. Type of Use – The MPPP will be allowed only in
conjunction with mortgage portfolio reviews and
the servicing of those portfolios by lenders and
mortgage servicing companies. The MPPP is not
allowed to be used in conjunction with any form of
loan origination.
2. Type of Property – The standard NFIP rules apply,
and all types of property eligible for coverage
under the NFIP will be eligible for coverage under
the MPPP.
F. Source of Offering
The force-placement capability will be offered by the WYO
Companies only and not by the NFIP Servicing Agent.
G. Dual Interest
The policy will be written covering the interest of
both the mortgagee and the mortgagor. The name of
the mortgagor must be included on the Application
Form. It is not, however, necessary to include the
mortgagee as a named insured because the Mortgage
Clause (section VII.Q. of the Dwelling Form and the
General Property Form) affords building coverage to
any mortgagee named as mortgagee on the Flood
Insurance Application. If contents coverage for the
mortgagee is needed, the mortgagee should be
included as a named insured.
H. Term of Policy
NFIP policies written under the MPPP will be for
a term of 1 year only (subject to the renewal
notification process).
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I. Coverage Offered
Both building and contents coverage will be available
under the MPPP. The coverage limits available under
the Regular Program will be $250,000 for building
coverage and $100,000 for contents. If the WYO
Company wishes to provide higher limits that are
available to other occupancy types such as other
residential or non-residential, it may do so only if it
can indicate that occupancy type as appropriate. If
the mortgaged property is in an Emergency Program
community, then the coverage limits available will
be $35,000 for building coverage and $10,000 for
contents. Again, if the higher limits are desired for
other types of property, then the building occupancy
type must be provided at the inception of the policy
or when that information may become available, but it
must be prior to any loss.
J. Policy Form
The current SFIP Dwelling Form and General Property
Form will be used, depending upon the type of
structure insured. In the absence of building occupancy
information, the Dwelling Form should be used.
K. Waiting Period
The NFIP rules for the waiting period and effective
dates apply to the MPPP.
L. Premium Payment
The current rules applicable to the NFIP will apply. The
lender or servicer (or payor) has the option to follow its
usual business practices regarding premium payment,
so long as the NFIP rules are followed.
M. Underwriting – Application
1. The MPPP will require less underwriting information
than normally required under the standard NFIP
rules and regulations. The MPPP data requirements
for rating and processing are, at a minimum:
a. Name and mailing address of insured
(mortgagor; also see Dual Interest);
b. Address of insured (mortgaged) property;
c. Name and address of mortgagee;
d. Mortgage loan number;
e. Community name, number, map panel number
and suffix, and program type (Emergency
or Regular);
f. NFIP flood zone where property is located
(lender must determine, in order to determine
if flood insurance requirements are necessary
and to use the MPPP);
g. Occupancy type (so statutory coverage limits
are not exceeded. This information may be
difficult to obtain. Also see Coverage Offered.);
h. Is the building walled and roofed? Yes or No;
i. Is the building over water? No, Partially, or
Entirely; and
j. Amount of coverage.
2. No elevation certificates will be required as there
will be no elevation rating.
N. Rates
See table on page MPPP 1.
O. Policy Declarations Page Notification
Requirements
In addition to the routine information, such as amounts
of coverage, deductibles, and premiums, that a WYO
Company may place on the policy declarations page
issued to each insured under the NFIP, the following
messages are required:
1. This policy is being provided for you as it is required
by Federal law as has been mentioned in the
previous notices sent to you on this issue. Since
your mortgage company has not received proof
of flood insurance coverage on your property in
response to those notices, we provide this policy
at their request.
2. The rates charged for this policy may be considerably
higher than those that may be available to you if
you contact your local insurance agent/producer
(or the WYO Company).
3. The amounts of insurance coverage provided in
this policy may not be sufficient to protect your full
equity in the property in the event of a loss.
4. You may contact your local insurance
agent/producer (or WYO Company) to replace this
policy with a conventionally underwritten SFIP,
at any time, and typically at a significant savings
in premium.
The WYO Company may add other messages
to the declarations page and make minor editorial
modifications to the language of these messages
if it believes any are necessary to conform to
the style or practices of that WYO Company, but
any such additional messages or modifications
must not change the meaning or intent of the
above messages.
Since the amount of underwriting data obtained at
the time of policy inception will typically be limited,
the extent of any coverage limitations (such as
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MPPP 4 OctOber 1, 2012
when replacement coverage is not available or
coverage is limited because the building has a
basement or is considered an elevated building
with an enclosure) will be difficult to determine.
It is, therefore, the responsibility of the WYO
Company to notify the mortgagor/insured of all
coverage limitations at the inception of coverage
and impose any that are applicable at the time of
the loss adjustment.
P. Policy Reformation – Policy Correction
In the event that the premium payment received is
not sufficient to purchase the amounts of insurance
requested, the policy shall be deemed to provide only
such insurance as can be purchased for the entire
term of the policy for the amount of premium received.
With 2 exceptions, where insufficient premium is
discovered after a loss, the complete provisions
for reduction of coverage limits or reformation are
described in:
• Dwelling Form, section VII, paragraph G.; and
• General Property Form, section VII, paragraph G.
The property must be insured using the correct SFIP
form in order for these 2 exceptions to apply.
The 2 exceptions are following and apply only when
after a loss it is discovered that the premium is
insufficient to provide the coverage requested:
1. Any additional premium due will be calculated
prospectively from the date of discovery; and
2. The automatic reduction in policy limits is effective
the date of discovery.
This will provide policyholders with the originally
requested limits at the time of a claim arising before
the date of discovery without paying any additional
premium. Policyholders will then have 30 days to pay
the additional premium that is due for the remainder
of the policy term, to restore the originally requested
limits without a waiting period.
However, all claim payments will be based on the
coverage limitations provided in accordance with the
correct flood zone for the building location and not on
the zone shown on the flood policy if it is in error.
When coverage is issued using an incorrect SFIP form,
the policy is void and the coverage must be written
under the correct form. The provisions of the correct
SFIP form apply. The coverage limits must be reformed
according to the provisions of the correct SFIP form
and cannot exceed the coverage limits originally issued
under the incorrect policy.
Q. Coverage Basis – Actual Cash Value or
Replacement Cost
There are no changes from the standard practices
of the NFIP for these provisions. The coverage basis
will depend on the type of occupancy of the building
covered and the amount of coverage carried.
R. Deductible
A $1,000 deductible is applicable for policies written
under the MPPP.
S. Federal Policy Fee
There is no change from the standard practice. The
Federal Policy Fee in effect at the time the MPPP policy
is written must be used.
T. Renewability
The MPPP policy is a 1-year policy. Any renewal of
that policy can occur only following the full notification
process that must take place between the lender
(or its authorized representative) and the insured/
mortgagor, when the insured/mortgagor has failed
to provide evidence of obtaining a substitute flood
insurance policy.
U. Cancellations
The NFIP Flood Insurance Manual rules for cancellation/
nullification are to be followed, when applicable.
V. Endorsement
An MPPP policy may not be endorsed to convert it directly
to a conventionally underwritten SFIP. Rather, a new
policy application, with a new policy number, must be
completed according to the underwriting requirements
of the SFIP, as contained in the NFIP Flood Insurance
Manual. The MPPP policy may be endorsed to assign
it under rules of the NFIP. It may also be endorsed for
other reasons such as increasing coverage.
W. Assignment to a Third Party
Current NFIP rules remain unchanged; therefore, an
MPPP policy may be assigned to another mortgagor or
mortgagee. Any such assignment must be through an
endorsement.
X. Article XIII – Restriction on Other Flood Insurance
Article XIII of the Arrangement is also applicable to the
MPPP and, as such, does not allow a company to sell
other flood insurance that may be in competition with
NFIP coverage. This restriction, however, applies solely
to policies providing flood insurance. It also does not
apply to insurance policies provided by a WYO Company
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MPPP 5 OctOber 1, 2012
in which flood is only 1 of several perils provided,
or when the flood insurance coverage amounts are
in excess of the statutory limits provided under the
NFIP or when the coverage itself is of such a nature
that it is unavailable under the NFIP, such as blanket
portfolio coverage.
Y. Participating WYO Companies
A list of the WYO Companies that participate
in the MPPP is available on FEMA’s website at
http://w ww.fema.gov/nfipInsurance/search.do?
action=Search&state=mppp.
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