Homeowner’s insurance , as we have seen throughout this guide, is an extremely important part of owning your own home.
We all want the peace of mind and security of knowing that should disaster strike, we will not be in jeopardy of losing what is typically the single largest asset we own and have invested so much of our savings and effort to acquire!
But what do you do if your insurance company decides to cancel or non-renew your homeowner’s insurance policy?
Read on to learn about consumer protection and your rights as a home insurance customer.
Current State of Property and Homeowner’s Insurance and Non-Renewals
Property insurance is known as a loss leader in the insurance industry, with insurers paying an estimated 119% more in claims that premiums received over the last twenty years.
In the 1990s, insurance companies could offset losses with the profits and investments they made from commercial insurance, until the commercial insurance market began to lose steam. And after 2000, losses from a rash of natural disasters in the U.S. and new claims arising from the health threats of toxic mold problems only made the situation worse.
To counteract these financial woes, insurers have increasingly added exclusions to homeowner’s insurance policies and increased the number of cancellations and non-renewals based on claims history and enhanced claims records and loss tracking enabled by the industry’s collective adoption of the comprehensive loss underwriting exchange (CLUE) records database.
State insurance agencies too, have made changes in the laws governing homeowner’s insurance provisions to help protect consumers. But the number and severity of claims made before an insurer is allowed to non-renew or cancel a policy vary from state to state, but can be a few as two claims being filed within a two or three year period.
And if your policy is cancelled or non-renewed, not only does the database reflect such for you individually, but also your home, which can affect resale value since prospective buyers may not be easily able to obtain coverage on the property.
Homeowner’s Insurance Cancellation and Non-Renewal Triggers
A study conducted by the Independent Insurance Agents & Brokers of America (IIABA) in 2003 revealed that approximately 2.5 million homeowners lost their coverage in the previous two year period.
Generally, non-renewal involves one of two triggers. The first involves heavy losses in a certain area prone to specific types of danger like storm damage, living in a flood plain or earthquake-prone geography.
The second trigger relates to the specific claims history of policyholders; even if you file legitimate claims, you may find yourself in the precarious position of receiving a non-renewal notice from your insurance company.
And if your homeowner’s insurance coverage lapses, it could put you in default with your Mortgage company, leading them to required you to purchase forced-placed coverage, which is provided by insurers of last resort who charge as much as three times normal premium rates in return for accepting higher risks!
What is the Difference Between Cancellation and Non-Renewal?
If your insurance company decides not to renew your home insurance policy, they are required to notify you of such at least thirty days prior to the date of your current policy’s expiration. If the company fails to notify you thirty days in advance, they are required to renew the policy if you request.
Cancellation of a policy on the other hand can be made by either you or your company prior to the expiration or renewal date specified. If your policy is cancelled, you are entitled to receive any unearned premium, which is a prorated amount you have already paid toward your premium.
Generally, your insurance company can decide not to renew your policy in the case that you have let it deteriorate beyond certain standard or if you have filed three or more claims during the previous three years that were not due to weather-related damage.
Cancellation of your homeowner’s insurance coverage by your insurer is allowed within the first sixty days from the time the policy is issued in a case that undisclosed risk of loss is discovered which is not related to a prior claim, fraud or increased risk are discovered or you have not paid your premium. Such cancellation requires the insurer to give you thirty days’ notice.
Most home insurance policies are suspended automatically if you move out and leave your home vacant for 60 days or more, although the liability portion of your coverage continues in this case. Extended vacancy is also cause for your insurer to non-renew your policy at expiration.
Insurers may not refuse to renew your due following a third claim unless you are notified after a second claim not related to weather that your policy will not be renewed. Alternatively, your insurer may apply a surcharge if you have filed two or more claims not related to damage caused by weather within the previous policy year.
What to do in the Event Your Homeowner’s Policy is Cancelled or Non-Renewed
In the event your home insurance coverage is cancelled or non-renewed or you are rejected for home insurance, it is important to know your rights as a homeowner.
You are entitled to a written explanation of the reasons your application for a policy has been rejected or in the case that your home insurance has been cancelled. Your rights include challenging records relating to your claim history, which are kept by the Comprehensive Loss Underwriting Exchange (CLUE), and typically reviewed by an insurance company considering your application.
You can obtain a copy of your CLUE report from Choice Point Consumer Center  if you have received a denial letter from an insurer and it contains a CLUE reference number.
Discriminatory practices are highly regulated in the insurance industry and your homeowner’s policy may not be denied, non-renewed, limited or require premium rates based on age, gender, race, color, national origin, religion, marital status, disability or geographic location.
Denial must be based solely upon “sound underwriting or actuarial principles” which the insurer can use to provide statistical evidence that your home represents greater risk of a loss than other homes the company agrees to insure.
This holds true for discrimination against homeowners within a given rate class and regardless of the age or value of your home, although insurers may require wiring, pluming, heating/air conditioning and other major components be updated before accepting an older home and may give discounts for newer homes which are assumed to have a lower risk.
If you believe that you have been denied coverage or that your homeowner’s insurance coverage has been cancelled or non-renewed unfairly, first contact your insurance company and provide a written explanation of your reasons.
If you do not receive a reply within thirty days or the reply does not provide an adequate response, contact your state insurance commissioner’s office.
If you have exhausted all efforts to convince your insurer that your policy should be accepted or renewed, then try shopping around with other insurance companies since underwriting guidelines and actuarial practices do vary.
Homeowner’s Insurance Rejection, Cancellation and Non-Renewal Preventi Tips
- Consider whether or not you should even contact your insurance company regarding a minor loss; claims do not need to be filed or paid and even discussing it with your insurance agent could count against your record.
- Insurers are trying to discourage the time and expense of dealing with small claims and view people who make frequent claims as higher risks to losses, so avoid filing small claims altogether, which not only helps prevent non-renewal but also may enable you to qualify for a discounted premium.
- Consider increasing your deductible from the lowest, typically $100 or $250 up to $500 or even $1,000, since you won’t be likely to file claims for smaller amounts anyway; larger deductibles can save as much as 25% on your premium and these savings can be put aside to cover any minor losses you may incur.
- Stay with one insurance company and bundle your auto, life and other insurance coverage if possible since you are likely to be valued more highly as a long term company and have multiple policies.
- Always keep your home in good repair to avoid claims in the first place and to receive any discounts your insurance company may offer for home security, electrical, plumbing and other upgrades that decrease the likelihood of incurring losses.