The State of New York has ordered QBE to cut the cost of force-placed insurance after an inquiry found homeowners have been overcharged millions of dollars.

The state’s Department of Financial Services has ordered QBE and two other insurers that between them control more than 90% of the market to submit proposals for new premium rates by July 6.

QBE incoming Group CEO John Neal told AM Best’s News Service last week that calls for rate cuts by regulators in New York and California won’t have a significant financial impact.

He says the force-placed business of QBE First is very diversified. New York accounts for 3% and California 12%.

Sydney-based Merrill Lynch analyst Andrew Kearnan has told clients that a 30% cut in rates across the market and other changes could wipe $US240 million ($235.6 million) off QBE’s pre-tax profit in 2013. This appears to be the worst-case scenario and he notes an outcome this severe is unlikely.

Force-placed insurance covers a property when the homeowner fails to maintain insurance as required by the mortgage agreement.

The insurance has become controversial in the US because of the high cost of premiums and low payout ratio, and QBE and other insurers are facing class action lawsuits.

New York Governor Andrew Cuomo says rates for the insurance can be between three and 10 times the cost of normal home insurance, while offering less protection to the homeowner.

The US financial crisis starting in 2009 led to many home payment defaults and the force-placed market grew from $US1.5 billion ($1.47 billion) in 2004 to $US5.5 billion ($5.4 billion) in 2010.