MEDIA ADVISORY: I.I.I. President to Testify in Atlanta on Lender-Placed Property Insurance

ATLANTA, GA, August 9, 2012 — Lender-placed insurance (LPI) is an important risk management tool for lenders and also protects the financial interests of homeowners, investors and taxpayers, according to testimony scheduled for delivery today by Dr. Robert Hartwig, an economist and president of the Insurance Information Institute (I.I.I.).

 

LPI coverage plays an increasingly important role in the U.S. economy due to increased demand for LPI in the wake of the nation’s housing crisis, and the vulnerability of property to damage from increased catastrophe activity. 

“The bulk acceptance of properties under LPI programs, compounded by the fact that a number of states with the highest foreclosure rates are highly catastrophe prone, suggests that LPI insurers will have vulnerability to catastrophe losses that often exceeds that of standard market home insurers,” Dr. Hartwig will tell state insurance regulators. “The resulting expectation of higher catastrophe losses and greater variability in annual results over time must be reflected in the cost of LPI coverage.”

Lender-placed insurance generally comes into play when mortgage borrowers stop paying their homeowners insurance premiums, according to the I.I.I. president’s written testimony. Lenders purchase LPI in order to protect their financial interest in the property even if the property is damaged or destroyed by a wide range perils, including hurricanes, tornadoes, fires and floods. LPI also facilitates the smooth functioning of the primary and secondary residential mortgage markets and serves as a means for satisfying the requirements placed on the mortgage market by federal regulators, Dr. Hartwig observed.

“LPI functions like a privately funded residual market—but one in which rates are actuarially sound. Unlike most residual market plans, LPI is entirely self-funded. No taxpayer or property/casualty policyholders subsidize LPI insurance or insurers. In many respects, the coverage available through LPI programs is underwritten in a far more liberal manner,” Dr. Hartwig’s written testimony states, noting, for instance, that lender-placed insurance policies are underwritten without the property first being examined and cover the structure of the home for flood damage, something a standard homeowners insurance policy does not do.

Dr. Hartwig’s complete testimony can be found here. To arrange a media interview with Dr. Hartwig, reporters can contact either Michael Barry, I.I.I. vice president, Media Relations at 212-346-5542, or the I.I.I.’s president directly via email at bobh@iii.org.

Dr. Hartwig is appearing before a joint session of the National Association of Insurance Commissioners’ (NAIC) Property and Casualty (C) Committee and its Market Regulation and Consumer Affairs (D) Committee. The public hearing begins today, Thursday, August 9, at 1 p.m. It is being held at the Atlanta Marriott Marquis, 265 Peachtree Center Avenue Northeast, Room A601, Atrium Level, in Atlanta, Georgia.