“Use It and Lose It” a Problem Among Policyholders – from the LMA Newsletter of March 20, 2017

Honest mistakes aside, we all know (or should!) that good customer service is the key to long-term business success. Encouraging that behavior in the insurance industry is the stated goal of the Rutgers Center for Risk and Responsibility at the Rutgers University School of Law in Camden, New Jersey. But in its latest report, the school finds that many times when a homeowner suffers a loss and files a claim, the insurance company responds by raising the homeowners premiums or declining to renew the policy.“Homeowners shouldn’t be penalized by their insurance companies because they actually use their insurance,” said Jay Feinman, co-director of the Rutgers center and a professor at the law school, in a press release.

The report, State Rankings of Homeowners Insurance Protections: Use It and Lose It is part of the Essential Protections for Policyholders project in cooperation with United Policyholders and offers recommendations to state insurance commissioners and lawmakers on insurance claims issues. The project goes beyond the claims paperwork to interviews with consumers on what they are disappointed or surprised by in dealings with their insurers.

The report calls “Use It and Lost It” a huge problem for homeowners in this age of datamining, noting that if a policyholder is dropped by one insurance company, it can be hard to find comparable coverage at an affordable price. As homeowners become aware of the practice, they are deterred from filing claims even if the losses would be covered under their policies.

Insurance companies legitimately can use some elements of policyholders’ claims experience in deciding whether to renew policies and how to price them, the report acknowledges. But companies “should not be able to engage in practices that punish policyholders just for asking a simple question or getting the coverage their insurance policies promise and that discourage legitimate claims.”

The report, sent to all the insurance commissioners, says that states should prohibit insurance companies from surcharging, increasing premiums, or refusing to renew policies because policyholders have made inquiries about coverage or have filed a single claim. The report specifically recommends against doing so based on a single claim within three years; a claim that results in no payment by the company; an inquiry by a policyholder that does not result in a claim; or a single claim for loss caused by weather or a natural disaster.

The report also ranks states on how well they protect insurance consumers, noting there’s a dramatic difference. Only two states-Rhode Island and Texas-earned a five-star rating for protecting consumers from improper rate increases and non-renewals for inquiries, claims closed without any payment, and a single claim. Eighteen states have no explicit protection at all from Use It and Lose It. Florida ranked 17th.

Editor’s note:  Our team at LMA works very closely with insurance company executives who believe the policyholder comes first and would not, for unsubstantiated reasons, simply cancel a policyholder for filing a claim.  In fact, Florida’s insurance code provides guidance as to cancellation provisions.  We, however, wanted to provide our readers this input to stay abreast of what the current “talk” is among those who may not necessarily have a balanced approach to understanding proper underwriting and insurance company operations.