Insurance agents say mortgage companies are contributing to the insurance crisis

Houses in the New Orleans area.
Houses in the New Orleans area.(Source: WVUE)
Published: Sep. 23, 2022 at 10:06 PM CDT
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NEW ORLEANS (WVUE) - Amid the ongoing insurance crisis some mortgage companies are being blamed for some of the pain homeowners are feeling after their coverage was canceled by insurers who failed, or left Louisiana after Hurricane Ida.

Ross Fayard owns Amstate Insurance.

“For whatever reason, mortgage companies are dragging their feet now,” said Fayard.

When it was learned that some insurance companies would cancel thousands of policies in late June and mid-July, Insurance Commissioner Jim Donelon announced that agents would have an additional 60 days to place policies from failed insurers with Louisiana Citizens, the state’s insurer of last resort.

Donelon’s office said, “With this change, Citizens will effectively provide coverage for Lighthouse Excalibur and Maison policyholders from June 30 through August 28, and for Southern Fidelity policyholders from July 16 through September 13, as long as agents place policies with Citizens by the 60-day deadline, and it is a risk that meets Citizens’ guidelines.

The problem according to some insurance brokers is that some mortgage companies who pay insurance premiums for homeowners did not act fast enough to meet the deadline.

“We call the mortgage company, we invoice the mortgage company, we upload it, mortgage companies are taking forever to pay it, so although Citizens allowed you to back-date the policy you still got to pay for it, and mortgage companies are dragging their feet and when they finally do pay it, guess what the extension is over with,” Fayard said.

And as a result, some homeowners are hit with force-placed coverage by their lenders which can be very expensive.

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FOX 8 asked Donelon about the problem for this news story.

“I’ve heard about the threat of that from mortgage companies, I’ve not heard about it being implemented yet. It’s sometimes in the interest of a lender to force place because of their financial arrangement with the company that they do that force placement through,” he said.

Fayard says, “If they get force-placed coverage get with your agent because you’re going to know, you’re going to know when that extra $5,000, $6,000 on your balance, you’re going to know it, so what I advise you to do is, get with your agent, get a track record like if you have insurance with my office you can come in here, we will give you a like a diary on what we did, when we did it, the time we did it, who we spoke to,” he said.

Fayard said he spoke to a customer on Friday (Sept. 23) who was dealing with a similar problem.

“And sure, enough they had a forced placed policy now. Now what I did was I uploaded a new invoice with a binder effective today which will immediately cancel out that forced placed coverage, but it is a pain in the butt because now you got to get a re-analysis of your escrow, it’s a headache,” he said.

Robert Cagle, an insurance broker with TWFG insurance says he has worked long hours to find new coverage for clients who had their coverage canceled this year.

“It was a monumental task just to keep people insured and then not everybody returns phone calls, not everybody and they don’t find out until when their lender force-places them because the lender is going to protect their interest first,” he said.

Donelon recommends that insurance agents who have clients impacted by force-placed insurance to contact his office.

“I would urge anybody, any agent or their client call us at, 800-259-5300, we work closely with the office of financial institutions and get them involved in addressing with lenders any issues such as that,” Donelon stated.

Fayard says given the current insurance climate it is a good idea to verify insurance coverage.

“If you can’t get your agent on the phone, call your insurance company and say, look, I just want to verify I have coverage in place because with all the craziness going on there’s a good possibility the ball may have been dropped somewhere,” he said.

Donelon remains optimistic about a plan to attract more insurers to the state. He has requested to use his department’s over-collections which typically revert to the state general fund as the original funding for the “Insurance Louisiana Incentive Program”.

“If they get $5 million in a grant, they have to put up an additional $5 million of their own money, and then they have to commit to writing twice the $10 million or $20 million of new business and stay on that business for at least five years,” Donelon said.

However, his office said the fund would need to be recognized by the Revenue Estimate Committee and then approved through the legislative BA-7 process before being made available for the program. REC does not meet again until December.

Cagle says he is praying Louisiana does not get hit by a hurricane this year.

“I think after the storm season passes liability of other companies coming in is better than it is at this time,” he said.

And Fayard offered this advice to people getting refunds from the Louisiana Insurance Guaranty Association known as LIGA.

“When you start getting your refunds in, don’t forward that check to your escrow because if that check gets lost it’s going to be a nightmare trying to put a stop payment on that check what I’d advise you to do is just take that check and deposit it into your account, your personal account,” said Fayard.

He said the funds could be used to bring down monthly mortgage payments.

“Let’s just say the refund is for $2,000, take that and then you write a check going to your escrow for $2,000 and when your check clears the bank, call them, say, look can I do a reanalysis of my escrow to get my house payment down, that is important because the refund checks are starting to get distributed.”

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