Make no mistake, insurance companies need clients and don’t want to non-renew or cancel any of them. However they sometimes find it necessary to do so and insurance policies can be non-renewed or cancelled for a variety of reasons. Because shopping for new insurance coverage on the fly can be a hassle, avoiding the situation in the first place is the best solution. Knowing why insurance companies are compelled to non-renew or cancel an insurance policy is the first step, and the five leading factors are:
- Filing excessive claims, even zero-paid claims
- Failure to make payments on time
- Increased location risk
- Poor property maintenance
- Ownership of dangerous pets
The common theme among all five of these reasons is an increase in the likelihood of the insurance company needing to pay a claim in the near future. The good news is that, in most cases, these situations are preventable.
Filing Excessive Claims
Insurance companies are obligated to pay legitimate claims. However, policies have limitations and not all claims are covered 1. We suggest that, if ever uncertain if a claim is covered, the homeowner should discuss the matter with their insurance agent first. This way, prior to reporting it to the insurance company, the agent can advise regarding if it is 1) covered and 2) meaningfully higher than the deductible. This is because regardless of whether the insurance company makes a payment, it will still be documented as a claim on the homeowner’s record. I am not suggesting clients shouldn’t file legitimate claims. Financial protection from claims is the reason we purchase insurance in the first place. But should you have questions regarding whether a claim is covered, have a conversation with your insurance agent prior to filing it.
For most insurance companies, three claims within three years will lead to a homeowners policy being non-renewed. This is true even if some of the claims resulted in no payment. Statistics show that homeowners with non-covered claims are at a higher risk to also experience covered claims and therefore warrant higher insurance costs. A history of claims, covered or non-covered, makes a homeowner appear less appealing to the insurance company. And because all claims are recorded in a central database, once cancelled or nonrenewed it is difficult to find attractively priced coverage with another insurance company.
Failure to Make Payments on Time
Insurance can be cancelled by not paying for it, but even making too many payments late can lead to a homeowners policy being non-renewed. An insurance company is required by law to notify their client prior to cancelling a policy for non-payment. Therefore, when a payment is late, they must issue a notification of a pending cancellation. Then, when the payment arrives, they must issue a notice rescinding that cancellation. All this back-and-forth every time a payment is late is an expensive administrative burden. In addition, it can be a signal to the insurance company that other issues may be present, which is why some insurance companies will non-renew a policy if too many payments are late. For this reason, many insurance companies offer a paid-in-full discount which we’ve seen as high as 15%.
Increased Location Risk
The risk of insuring a home in a certain area can change over time. This adjustment may be due to actual physical changes in the surrounding area, or simply how the region is perceived by insurance companies. For example, the wildfires in California in 2021, in addition to forecasted climate change, is causing many insurance companies to relook at their homeowners policies in that area and either adjust pricing or non-renew. Similar situations can occur on the coastlines with the risk of hurricane and flood, or more specifically in neighborhoods experiencing economic degradation and increases in crime. These factors, and many more, can cause a change to the risk of a location, requiring insurance companies to non-renew homeowners insurance policies.
Poor Property Maintenance
Homeowners insurance policies require each homeowner to properly maintain their house. Insurance is meant to repair or replace a home for unforeseen events, not damage due to neglect. And a home in disrepair means claims are soon coming. For example, if a roof needs to be replaced, the insurance company will likely be paying to replace it during the next large windstorm 2. If front steps are in disrepair or do not have proper handrails, an injury lawsuit is likely from guests, visitors, or delivery drivers. Insurance companies periodically inspect homes they insure, even if only by street-view photos, and improper maintenance can lead to a non-renewal.
Ownership of Dangerous Pets
Insurance companies handle dog ownership differently, but commonalities exist. Dog bite lawsuits average over $50,000 each, so many companies pay attention to dog breeds producing the most bite claims. If a homeowner adopts one of these breeds, it could lead to an insurance policy non-renewal. And though dogs aren’t the only animal that can cause a pet-related claim, they represent the vast majority. For more information, reference our article How Dogs Affect Homeowners Insurance.
Some of these situations are not within the control of a homeowner, such as the wildfires in California and climate change. However, Bankers Insurance advises that homeowners should avoid those that are. Even more, they should seek ways to further reduce the risk of claims and make insuring their home more attractive to insurance carriers, thereby increasing the number of insurance companies willing to quote their coverage and decreasing prices. Want to learn more about how to do this? Contact your Bankers Insurance agent. Not a client of ours? Let us earn your business! Each of our clients is assigned a personal insurance agent and provided their email address as well as a phone number that rings right on their desk.
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