Georgia lawmakers want to rewrite the rules on collateral protection insurance - and insurers writing the coverage should pay attention.
House Bill 1554, introduced during the 2025 legislative session by Representatives Jutt Howard, Kimberly New, David Huddleston, and Tyler Smith, lays out what could become one of the more prescriptive state-level frameworks for collateral protection insurance on mortgaged real property. Officially titled the Collateral Protection Insurance Act, the bill would add a new Article 5 to Chapter 24 of Title 33 of the Official Code of Georgia Annotated. If it clears the legislature, it would take effect on January 1, 2028, applying to all applicable insurance policies issued, delivered, issued for delivery, or renewed on or after that date.
For those unfamiliar with the product, collateral protection insurance is commercial property insurance where a creditor is the primary beneficiary and policyholder, covering the creditor's interest in real property following a borrower's failure to maintain the coverage required under their mortgage agreement. The bill's provisions make clear that charges for the coverage can be made to the mortgagor, and it is this intersection of lender interest and borrower cost that the legislation seeks to regulate.
At its core, the bill is trying to build a wall between the parties involved. Insurers and agents would be prohibited from issuing collateral protection insurance on properties that they, or their affiliates, own, service, or hold servicing rights to. The bill also bans compensating, including through the payment of commissions to, lenders, insurers, investors, or servicers on collateral protection insurance policies. Premium and risk sharing between the insurer and the lender, investor, or servicer that obtained the collateral protection insurance is off the table. So are contingent commissions, profit-sharing arrangements, and any payments tied to profitability or loss ratios flowing to anyone affiliated with a servicer or the insurer. Even outsourcing gets scrutiny - insurers cannot provide free or below-cost outsourced services to lenders, investors, or servicers, nor can they outsource their own functions to lenders, insurance agents, investors, or servicers on an above-cost basis.
The bill also gets into the mechanics of how coverage amounts and premiums are calculated, using a three-tier approach. The starting point is the last known coverage amount - the dwelling coverage figure from the most recent evidence of insurance coverage provided by the mortgagee. Insurers are required to inquire of the insured at least once to try to obtain that figure. If the last known amount is unavailable, the insurer may use the replacement cost of the property serving as collateral, as calculated by the insurer, unless state or federal law prohibits that method. Failing both of those options, the fallback is the unpaid principal balance of the mortgage loan. Replacement cost value, as the bill defines it, is the estimated cost to replace covered property at the time of loss or damage without deduction for depreciation - not market value, but the cost to replace covered property to its pre-loss condition.
One provision that stands out is the treatment of excess coverage in the event of a loss. If the replacement cost coverage provided by the insurer exceeds the unpaid principal balance of the mortgage loan, the excess must be paid to the mortgagor. An insurer also may not write collateral protection insurance for which the premium rate differs from that determined by the schedules of the insurer on file with the department as of the effective date of any such policy.
The bill is equally detailed on when coverage kicks in and when it stops. Collateral protection insurance cannot take effect before the date the borrower's own coverage lapses. It terminates at the earliest of several trigger points: when the borrower obtains acceptable replacement coverage, when the property is no longer collateral for the loan, on a date specified in the policy or certificate, on a date set by the lender or servicer, or at the end of the policy term. Insurance charges to the mortgagor are not permitted before the effective date of the coverage or for a term longer than the scheduled term.
On the disclosure side, the bill requires that coverage be set forth in an individual policy or certificate of insurance and delivered to the mortgagor by first-class mail, in person, or in accordance with Code Section 33-24-14. The policy or certificate must include the address and identification of the insured property, the coverage amount or amounts if multiple coverages are provided, the effective date of coverage, the term of coverage, the premium charge, contact information for filing a claim, and a complete description of the coverage provided.
The rate oversight provisions carry real teeth. Insurers must refile their collateral protection insurance rates at least once every four years. Any rate analysis must include a determination of whether the expenses included by the insurer in the rate are appropriate. Insurers are also required to maintain separate rates for collateral protection insurance and for voluntary insurance obtained by a mortgage servicer on real estate owned property.
The annual reporting requirement applies to any insurer writing at least $100,000 in direct written premium for collateral protection insurance in the state during the prior calendar year. By April 1, those insurers must report actual loss ratios, earned premium, any aggregate schedule rating debit or credit to earned premium, itemized expenses, paid losses, and loss reserves including case reserves and reserves for incurred but not reported losses - separately produced for each collateral protection insurance program and presented on both an individual jurisdiction and nationwide basis.
Perhaps the provision with the sharpest edge is the loss ratio trigger. If an insurer experiences an annual loss ratio below 35 percent in any collateral protection insurance program for two consecutive years – flood coverage excepted – it must submit a rate filing, either adjusting its rates or supporting their continuance, to the department no more than 90 days after submitting its annual data. That threshold effectively puts insurers on notice that sustained low loss ratios will invite regulatory scrutiny.
The bill rounds out with an anti-circumvention clause providing that the article shall not be construed to authorize an insurance agent or insurer solely underwriting collateral protection insurance to circumvent the article's requirements. Any requirement, limitation, or exclusion provided in the article applies to an insurer or insurance agent involved in collateral protection insurance.
House Bill 1554 remains in the introduced stage and has not yet been enacted. But for insurers active in the collateral protection insurance space, the direction of travel in Georgia is clear enough to warrant a close read – and possibly an early conversation with compliance teams.
