MISSISSIPPI LEGISLATURE
2023 Regular Session
To: Insurance
By: Senator(s) Michel
AN ACT TO PROVIDE FOR FRAMEWORK FOR THE DEPARTMENT OF INSURANCE TO REGULATE LENDER-PLACED INSURANCE ON REAL PROPERTY; TO PROVIDE CERTAIN EXCLUSIONS TO THE ACT; TO PLACE CERTAIN REQUIREMENTS ON LENDER-PLACED INSURANCE POLICIES; TO REQUIRE CERTAIN CALCULATIONS TO BE FOLLOWED FOR DETERMINING THE REPLACEMENT COST VALUE OF REAL PROPERTY THAT ARE SUBJECT TO SUCH POLICY; TO PROHIBIT INSURANCE PRODUCERS OR INSURERS FROM ISSUING LENDER-PLACED INSURANCE OR MORTGAGED PROPERTY IF THE INSURER OR INSURANCE PRODUCER OR AFFILIATE OF THE INSURER OR INSURANCE PRODUCER, OWNS, PERFORMS THE SERVICING FOR, OR OWNS THE SERVICING RIGHT TO THE MORTGAGED PROPERTY; TO PROHIBIT NO INSURER OR INSURANCE PROVIDER FROM COMPENSATING A LENDER, INSURER, INVESTOR OR SERVICER, INCLUDING THROUGH THE PAYMENT OF COMMISSIONS, FOR LENDER-PLACED INSURANCE POLICIES ISSUED BY THE INSURER; TO ESTABLISH CERTAIN PROHIBITIONS; TO PROVIDE CERTAIN EXCEPTIONS TO THE APPLICATION OF THE ACT; TO SET CERTAIN REQUIRED ELEMENTS OF LENDER-PLACED INSURANCE POLICIES; TO AUTHORIZE THE COMMISSIONER OF INSURANCE TO ENFORCE THE PROVISIONS OF THE ACT; TO AUTHORIZE THE DEPARTMENT OF INSURANCE TO IMPOSE A MONETARY PENALTY FOR VIOLATIONS OF THE ACT; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. (1) The provisions of this act shall apply to all insurers and insurance producers engaged in any transaction involving lender-placed insurance.
(2) All lender-placed insurance written in connection with mortgaged real property, including manufactured homes and modular units, shall be subject to the provisions of this act, except:
(a) Transactions involving extensions of credit primarily for business, commercial or agricultural purposes;
(b) Insurance offered by the lender or servicer and elected by the mortgagor at the mortgagor's option;
(c) Insurance purchased by a lender or servicer on real estate owned property; and
(d) Insurance for which no specific charge is made to the mortgagor or the mortgagor's account.
SECTION 2. As used in this act, the following terms shall have the meanings ascribed herein:
(a) "Affiliate" means a person who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the person specified.
(b) "Individual lender-placed insurance" means coverage for individual real property evidenced by a certificate of coverage under a master lender-placed insurance policy or a lender-placed insurance policy for individual real property.
(c) "Insurance producer" means a person or entity, or its affiliates, required to be licensed under the laws of this
state to sell, solicit or negotiate insurance.
(d) "Insurer" means an insurance company, association, or exchange, or its affiliates, authorized to issue lender placed insurance in this state.
(e) "Investor" means a person or entity, or its affiliates, holding a beneficial interest in loans secured by real property.
(f) "Lapse" means the moment in time in which a mortgagor has failed to secure or maintain valid or sufficient insurance upon mortgaged real property as required by a mortgage agreement.
(g) "Lender" means a person or entity, or its affiliates, making loans secured by an interest in real property.
(h) "Lender-placed insurance" means insurance obtained by a lender or servicer when a mortgagor does not maintain valid or sufficient insurance upon mortgaged real property as required by the terms of the mortgage agreement. Such term shall include insurance purchased unilaterally by the lender or servicer, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss, expense, or damage to collateralized property as a result of fire, theft, collision, or other risks of loss that would either impair a lender, servicer, or investor's interest, or adversely affect the value of collateral covered by limited dual interest insurance. Such term is limited to insurance purchased according to the terms of a mortgage agreement as a result of the mortgagor's failure to provide evidence of required insurance.
(i) "Loss ratio" means the ratio of incurred losses to earned premium.
(j) "Master lender-placed policy" means a group policy issued to a lender or servicer providing coverage for all loans in the lender or servicer's loan portfolio as needed.
(k) "Mortgage agreement" means the written document that sets forth an obligation or liability of any kind secured by a lien on real property and due from, owing, or incurred by a mortgagor to a lender on account of a mortgage loan, including a security agreement, deed of trust or any other document of similar effect, and any other documents incorporated by reference.
(l) "Mortgage loan" means a loan, advance, guarantee or other extension of credit from a lender to a mortgagor.
(m) "Mortgage transaction" means a transaction by the terms of which the repayment of money loaned or payment of real property sold is to be made at a future date or dates.
(n) "Mortgagee" means the person who holds mortgaged real property as security for repayment of a mortgage agreement.
(o) "Mortgagor" means the person who is obligated on a mortgage loan pursuant to a mortgage agreement.
(p) "Person" means an individual or entity.
(q) "Real estate owned property" means property owned or held by a lender or servicer following foreclosure under the related mortgage agreement or the acceptance of a deed in lieu of foreclosure.
(r) "Replacement cost value" or "RCV" means the estimated cost to replace covered property at the time of the loss or damage without deduction for depreciation. Replacement cost value is not market value, but it is instead the cost to replace covered property to its pre-loss condition.
(s) "Servicer" means a person or entity, or its affiliates, contractually obligated to service one or more mortgage loans for a lender or investor. Such term shall include entities involved in subservicing arrangements.
SECTION 3. (1) Lender-placed insurance shall become effective no earlier than the date of lapse of insurance upon mortgaged real property subject to the terms of a mortgage agreement or any other state or federal law requiring the same.
(2) Individual lender-placed insurance shall terminate on the earliest of the following dates:
(a) The date insurance that is acceptable under the mortgage agreement becomes effective, subject to the mortgagor providing sufficient evidence of such acceptable insurance;
(b) The date the applicable real property no longer serves as collateral for a mortgage loan pursuant to a mortgage agreement;
(c) Such other date as specified by the individual policy or certificate of insurance;
(d) Such other date as specified by the lender or servicer; or
(e) The termination date of the policy.
(3) An insurance charge shall not be made to a mortgagor for lender-placed insurance for a term longer than the scheduled term of the lender-placed insurance, nor shall an insurance charge be made to the mortgagor for lender placed insurance before the effective date of the lender placed insurance.
SECTION 4. (1) Any lender-placed insurance coverage, and subsequent calculation of premium, shall be based upon the replacement cost value of the property. Replacement cost value of the property shall be determined as follows:
(a) The dwelling coverage amount set forth in the most recent evidence of insurance coverage provided by the mortgagee ("last known coverage amount" or "LKCA"), if known to the lender or servicer;
(b) The insurer shall inquire of the insured at least once as to the LKCA, and if it is not able to obtain the LKCA from the insured or in another manner, the replacement cost value may be determined as set forth in paragraph (c) or (d) of this subsection;
(c) If the LKCA is unknown and cannot be obtained from the insured or in another manner, the replacement cost of the property serving as collateral as calculated by the insurer, unless the use of replacement cost for this purpose is prohibited by other law; and
(d) If the LKCA is unknown and cannot be obtained from the insured or in another manner, and the replacement cost is not available or its use is prohibited, the unpaid principal balance of the mortgage loan.
(2) In the event of a covered loss, any replacement cost coverage provided by an insurer in excess of the unpaid principal balance of the mortgage loan shall be paid to the mortgagor. (3) No insurer shall write lender-placed insurance for which the premium rate differs from that determined by the schedules of the insurer on file with the Department of Commerce and Insurance as of the effective date of the policy.
SECTION 5. (1) No insurer or insurance producer shall issue lender-placed insurance on mortgaged property if the insurer or insurance producer, or an affiliate of the insurer or insurance producer, owns, performs the servicing for, or owns the servicing right to, the mortgaged property.
(2) No insurer or insurance producer shall compensate a lender, insurer, investor or servicer, including through the payment of commissions, for lender-placed insurance policies issued by the insurer.
(3) No insurer or insurance producer shall share lender-placed insurance premium or risk with the lender, investor, or servicer that obtained the lender-placed insurance.
(4) No insurer or insurance producer shall offer contingent commissions, profit-sharing, or other payments dependent on profitability or loss ratios to any person affiliated with a servicer or the insurer in connection with lender-placed insurance.
(5) No insurer shall provide free or below-cost outsourced services to lenders, investors, or servicers, and no insurer shall outsource its own functions to lenders, insurance producers, investors, or servicers on an above cost basis.
(6) No insurer or insurance producer shall make any payments, including, but not limited to, the payment of expenses to a lender, insurer, investor, or servicer, for the purpose of securing lender-placed insurance business or related outsourced services.
SECTION 6. Nothing in this act shall be construed to allow an insurance producer or an insurer solely underwriting lender-placed insurance to circumvent the requirements set forth in this act. Any part of any requirements, limitations or exclusions provided in this act shall apply in any part to any insurer or insurance producer involved in lender-placed insurance.
SECTION 7. (1) Lender-placed insurance shall be set forth in an individual policy or certificate of insurance. A copy of the individual policy, certificate of insurance or other evidence of insurance coverage shall be mailed, first-class mailed, or delivered in person to the last known address of the mortgagor, or delivered in accordance with the Mississippi Insurance E-Commerce Model Act.
(2) In addition to any information otherwise required by law, the individual policy or certificate of insurance coverage shall include the following information:
(a) The address and identification of the insured property;
(b) The coverage amount, or amounts if multiple coverages are provided;
(c) The effective date of the coverage;
(d) The term of coverage;
(e) The premium charge for the coverage;
(f) Contact information for filing a claim; and
(g) A complete description of the coverage provided.
SECTION 8. (1) All policy forms and certificates of insurance to be delivered or issued for delivery in this state, and the schedules of premium rates pertaining thereto, shall be filed with the Department of Insurance.
(2) The Department of Insurance shall review the rates to determine whether the rates are excessive, inadequate or unfairly discriminatory. This analysis shall include a determination as to whether expenses included by the insurer in the rate are appropriate.
(3) All insurers shall re-file lender-placed insurance
rates at least once every four (4) years.
(4) All insurers writing lender-placed insurance shall have separate rates for lender-placed insurance and voluntary insurance obtained by a mortgage servicer on real estate owned property.
(5) Upon the introduction of a new lender-placed insurance program, the insurer shall reference its experience in existing programs in the associated filings. Nothing in this act shall limit an insurer's discretion, as actuarially appropriate, to distinguish different terms, conditions, exclusions, eligibility criteria or other unique or different characteristics. Moreover, an insurer may, where actuarially acceptable, rely upon models or, in the case of flood filings where applicable experience is not credible, on Federal Emergency Management Agency National Flood Insurance Program data.
(6) No later than April first of each year, each insurer with at least One Hundred Thousand Dollars ($100,000.00) in direct written premium for lender-placed insurance in this state during the prior calendar year, shall report to the Department of Commerce and Insurance the following information for the prior calendar year:
(a) Actual loss ratio;
(b) Earned premium;
(c) Any aggregate schedule rating debit or credit to earned premium;
(d) Itemized expenses;
(e) Paid losses; and
(f) Loss reserves, including case reserves and reserves for incurred but not reported losses.
The report under this subsection (6) shall be separately produced for each lender-placed program and presented on both an individual jurisdiction and countrywide basis.
(7) If an insurer experiences an annual loss ratio of less than thirty five percent (35%) in any lender-placed program
for two (2) consecutive years, it shall submit a rate filing, either adjusting its rates or supporting their continuance, to the Department of Insurance no more than ninety (90) days after the submission of the data required in subsection (6) of this section. This subsection (7) shall not apply with regard to lender-placed flood insurance.
(8) Except as otherwise specifically set forth in this section, rates and forms shall be filed as required under the insurance laws of this state.
SECTION 9. (1) The Commissioner of the Department of Insurance shall have authority to enforce the provisions of this act.
(2) A final order of the commissioner enforcing this act shall be subject to judicial review.
(3) No order of the commissioner enforcing this act or order of a court to enforce the same shall in any way relieve or absolve any person affected by such order from any liability under any other laws of this state.
(4) Nothing in this act shall be construed to create or imply a private cause of action for violations of this act.
(5) Nothing in this act shall be construed to extinguish any mortgagor rights otherwise available under state, federal or common law.
SECTION 10. An insurer that violates an order of the commissioner, while the order is in effect may, after notice and hearing, and upon order of the commissioner, be subject at the discretion of the commissioner to either or both of the following:
(a) Payment of a monetary penalty of not more than One Thousand Dollars ($1,000.00) per violation, not to exceed an aggregate penalty of One Hundred Thousand Dollars ($100,000.00), unless the violation was committed flagrantly in a conscious disregard of this act, in which case the penalty shall not be more than Twenty-Five Thousand Dollars ($25,000.00) for each violation, not to exceed an aggregate penalty of Two Hundred Fifty Thousand Dollars ($250,000.00); or
(b) Suspension or revocation of the insurer's license.
SECTION 11. The Department of Insurance may promulgate rules as necessary for the implementation of this act.
SECTION 12. This act shall take effect and be in force from and after July 1, 2023.