The US investigation into lender-based insurance, in which QBE is embroiled, has been intensified, with the New York Department of Financial Services to hold public hearings into the matter.

Mortgage providers take out the insurance – also known as “force-placed” insurance – when a borrower does not maintain homeowners’ insurance required under the terms of the mortgage or misses a mortgage payment, or if the mortgage provider determines that the borrower does not have sufficient cover.

The investigators claim this cover is far more expensive than typical homeowners’ coverage, saying it can be anywhere from two to 10 times more costly, with the costs passed on to the homeowner.

New York Superintendent of Financial Services Benjamin Lawsky is heading the investigation, which began last October. He has announced that public hearings will be held next month to review whether rates for lender-based insurance are excessive and to examine the relationships between, and payments to and from, insurers, banks, mortgage services and insurance agents and brokers.

He says that due to concerns raised by the investigation’s initial findings, the insurers involved must now also “provide more extensive and detailed information” to the inquiry.

This follows initial findings that the actual loss ratios on lender-based insurance are “dramatically lower” than the expected loss ratios insurers filed with the department.

Mr Lawsky says that while most insurers filed an expected loss ratio of 55%, one major insurer’s actual loss ratios for the past six years averaged 22% and another averaged less than 20%.

“This raises serious concerns about whether premiums for this insurance have been artificially inflated,” he said.

The additional information being sought includes actuarial justifications for lender-based insurance rates, detailed explanations of how rates and expected loss ratios are calculated, and itemised reports of insurers’ expenses and of the payments insurers receive relating to lender-based insurance.

Formal document requests have been sent to QBE, its subsidiary Balboa and other local US insurers.

QBE would not comment on the issue to insuranceNEWS.com.au.

“It appears that force-placed insurers charge very high premiums, but pay out only a very small percentage of those premiums on claims—as little as 20 cents in the dollar,” Mr Lawsky said.

“In addition, questionable payments are made to various players in the force-placed business, further increasing the profits to insurers and banks.

“We have asked insurers to provide a complete breakdown of how much they collect and where every penny goes so we can determine if the premiums are appropriate and the basis for these payments.”