Regulators in three U.S. states said they may examine the market for insurance that covers property when homeowners allow coverage to lapse, amid allegations that rates are too high and two firms dominate the business.

Florida’s insurance commissioner, Kevin McCarty, said yesterday that he plans to look at premiums and insurers’ business practices. Kentucky’s top regulator, Sharon Clark, said her office will evaluate rates. James Donelon of Louisiana called the market a “monopoly” and said stronger regulation may be needed.

State regulators attended a hearing in Atlanta yesterday on rates charged for so-called force-placed coverage, which protects mortgage lenders from storm damage and vandalism when homeowners stop paying for policies. Assurant Inc. (AIZ) and QBE Insurance Group Ltd. (QBE) control at least 90 percent of the market, McCarty said.

“What we’re dealing with and have been dealing with is the potentially excessive rates,” said McCarty, who’s president of the National Association of Insurance Commissioners, which held the hearing. “We’re certainly going to continue to look critically at the business practices.”

Assurant fell 1.6 percent to $35.65 as of 11:54 a.m. in New York. The insurer declined 12 percent this year through yesterday, compared with an 11 percent gain in the Standard & Poor’s 500 Index.

Premiums Triple

Force-placed premiums more than tripled to $5.5 billion in 2010 from $1.5 billion six years earlier, according to New York Department of Financial Services Superintendent Benjamin Lawsky. The insurers often pay out less than 25 cents for every dollar in premiums they collect, he said, compared with about 63 cents on a typical homeowner’s policy.

The surge in premiums has been driven by a rise in foreclosures and other market forces, said John Frobose, president of American Security Insurance, the force-placed business owned by New York-based Assurant. Providers of the coverage face greater risk than insurers in other markets, so the cost can be higher, he said.

“If the big companies wanted back in, they could come back in,” Frobose said yesterday.

QBE, the Sydney-based insurer, pays “tens of millions of dollars” for technology to administer its policies, said James P. Novak, senior vice president of the QBE First unit. He declined to comment on criticism from Donelon, the Louisiana regulator.

“This business keeps people in their homes,” Novak said.

The market for the coverage will contract as foreclosures drop and the U.S. economy improves, Robert Hartwig, president of the Insurance Information Institute, said at the hearing.

“Premiums have peaked,” Hartwig said, referring to the coverage as lender-placed insurance. “The LPI market will shrink, probably dramatically.”

To contact the reporters on this story: David Beasley in Atlanta at dbeasley4@yahoo.com; Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net