Each year approximately 1 million homeowners insurance policies are cancelled or refused for renewal. For many people, this creates a real conundrum since, by the terms of their mortgage, they must have coverage on their homes. As a consequence of the recession, which began in 2009, even fewer homeowners have the wherewithal to replace damaged household items or to start over in the aftermath of a major catastrophe.
Homeowners who find themselves without insurance regardless of the reason need to find coverage or face much more expensive consequences.
Over the past two decades, in various parts of the country, the insurance industry has suffered major losses on homeowners insurance policies. The ten most costly catastrophes in U.S. history in terms of insured losses are, in descending order:
1. 2005, Hurricane Katrina, $41.4 billion*
2. 2001, 9/11 terrorist attacks, $18.8 billion
3. 1992, Hurricane Andrew, $15.5 billion
4. 1994, Northridge, CA earthquake, $12.5 billion
5. 2008, Hurricane Ike, $12.5 billion
6. 2005, Hurricane Wilma, $10.3 billion
7. 2004, Hurricane Charley, $7.5 billion
8. 2004, Hurricane Ivan, $7.1 billion
9. 2005, Hurricane Rita, $5.6 billion
10. 1989, Hurricane Hugo, $4.2 billion
* In the aftermath of Hurricane Katrina, the National Flood Insurance Program paid out $15.6 billion in claims in addition to the $41.1 billion paid by private insurers
Understandably, this series of events, as well as more minor “disasters” has had a decided effect on how the insurance industry conducts itself in regard to homeowners coverage.
Homeowner’s insurance has been considered a loss leader in the industry, especially after the heavy losses sustained resolving claims from recent natural disasters and EPA-supported mold litigation costing billions of dollars. The little profit the homeowner’s insurance industry was seeing in insuring commercial machinery, offering fidelity bonds, E&O insurance and medical malpractice insurance has also waned.
Cancellation vs. Non-renewal in short
Most homeowners don’t think about the fact that insurance is a two-way street. You can choose not to renew the policy, but so can the insurer, which differs from an actual cancellation. In 2003, a study conducted by the Insurance Agents & Brokers of America found that more than a million policies were denied renewal on an annual basis. Outright cancellations are a different matter.
● Usually a cancellation can only occur 60 days after the start of the coverage period and must be preceded by a 30-day notice stipulating the discovery by the insurer of a previously undisclosed risk.
● Refusal to renew is generally linked to more than three claims (not including those caused by weather) in one year or by deterioration of the property below an acceptable standard.
If your policy is not renewed, you have a right to receive a written explanation. You also have the right to see the entry for your property on the Comprehensive Loss Underwriting Exchange database, and to challenge the refusal based on the details of that entry.
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Insurers have 30 days to respond to such a challenge, at which point customers who are still not satisfied can appeal directly to the given state’s insurance commissioner.
Homeowner underwriters have been ceaselessly adding interdictions to policies, escalated cancellations, and refused to renew policies, based on reviewing claims histories, or “loss reports” that are catalogued by the Comprehensive Loss Underwriting Exchange. If a home represents an unacceptable risk when compared to other homes the insurer underwrites, even if you have filed only a claim or two in a three year period, you may find yourself being refused renewal.
As a homeowner, you have the right to obtain a copy of the report from the Comprehensive Loss Underwriting Exchange and challenge the reasons for denial. You may not be cancelled or refused renewal based on race, gender, faith or economic status.
Refusals may only be based on sound statistical evidence the underwriter cites as the reason for increased risk. One good way to minimize your risk of cancellation or denial of renewal is to resist the temptation to file for, or even discuss the possibility of filing a minor claim with your insurance company.
Another way to remain under the cancellation radar is to increase your deductible to $1000 or better, especially since doing that will also net you a homeowner’s insurance discount of as much as 25%. To maintain a long and claim-free relationship with your insurer, especially if you have your auto and other policies with the same company, will increase your value to them.
By maintaining your home and upgrading its plumbing, electrical and security, not only will you lessen the risk of loss, but can also merit other homeowner’s insurance discounts. Homeowners who find that their location is becoming more prone to natural disasters, such as wildfires, hurricanes and flooding can upgrade landscaping, clear brush-free firebreaks and fortify drainage systems to minimize loss. Homeowner’s insurance underwriters value policyholders who work toward minimizing the risk of loss, and prefer to maintain relationships with their most responsible customers.
Understanding the Dilemma of Business
Insurers are in the business to make money. Statistically, homeowners insurance has been a losing proposition for the industry due to a series of severe weather events in recent years. This is not license for insurers to discriminate against customers, but if you fail to maintain your property or file multiple minor claims, you may find your policy canceled or denied a renewal. It’s the way of a pressured industry at the moment, and a factor of which homeowners should be aware.