Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, July 19, 1995 TAG: 9507190023
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
Bruce, who owns a house on Elm Avenue in Roanoke, got a "Dear John" letter a few weeks ago from Allstate Insurance Co. Seems the three claims she had filed over the last two years made her a high-risk customer, and the insurance company wasn't in the market for gambles. The letter informed her that Allstate had decided not to renew her policy when it expires next month.
She hadn't thought that the claims were frivolous: damage from last winter's ice storms, a broken pipe near her washing machine, a minor accident on her sidewalk resulting in a chipped tooth. The total payout was about $3,700. She had been a policyholder for about five years and never had any problems with her coverage. She even had purchased her car insurance from the same company, although she had canceled it a few months earlier.
Can insurance companies cancel policies like that? she wanted to know.
As long as they do it at renewal time, and as long as they follow state regulations, they certainly can, said Ken Schrad of the Virginia Bureau of Insurance, a unit of the State Corporation Commission.
"Keep in mind that an insurance contract is just that: a year-to-year contract," he said. Insurance companies are no different from any other businesses: As long as companies don't discriminate based on factors like age, sex or race, they are free to decide whether to renew their business contracts. The bureau, for all its regulatory power, can't force an insurance company to write policies that aren't profitable.
Insurance companies are not required to spell out in their policies what would constitute reasons for nonrenewal, Schrad said. Each carrier makes its own underwriting decisions based on where it strikes the balance between rates and risk factors: The more high-risk cases a company accepts, the higher the rates for all its policyholders.
Local Allstate agents deferred the question to a regional office, where marketing consultant Chris Mears said the company follows state rules and has an obligation to cancel high-risk customers to keep rates low for all customers.
He added that only 0.6 percent of all Allstate homeowner policies in Virginia are not renewed each year.
Make no mistake, insurance companies do care how big your claims are. The more expensive the claim, the smaller the profit the carriers make from your policy. But most companies care even more about how many claims you make, Mears said.
Mark Schumacher of the Liberty Mutual Group in Roanoke said three or four relatively small claims over the course of two years usually are seen as a bigger indicator of risk than a larger, one-time claim.
Two of Linda Bruce's three claims, in fact, were relatively minor: one was for $110, the other for $330. The frequency, not the size, led to the nonrenewal notice.
When deciding whether to renew a homeowner's policy, insurance companies also may take into consideration how long the policyholder has been insured with the company and how many other policies - like life or auto - the person holds with the company. The more policies with the same carrier, the more flexible the carrier is likely to be, said Schumacher.
Consumers aren't without rights in this whole business. Insurance companies are required by law to give customers 30 days notice of cancellation if the policy covers an owner-occupied house and 45 days notice if the policy also includes a business liability policy, as in the case of an in-home day-care center or beauty shop.
A policyholder who receives a nonrenewal notice has 10 days to request a review of the case by the state insurance commissioner. These reviews take into consideration individual circumstances and sometimes result in reversals of cancellations, Schrad said.
If a cancellation is supported, the bureau may be able to help the policyholder locate an insurance company willing to take on the policy.
by CNB