When you have a claim for property damage under your homeowners insurance, you should not be penalized by your carrier. You should not be slapped with an increase in premium or slammed with a non-renewal notice because you had a claim and had to actually use your insurance. Professor Jay Feinman, the author of Delay, Deny, Defend, has prepared a new report to help state lawmakers ban the practice known as “Use It and Lose It” and calls-out this harmful practice. This report is part of a series that my colleague Rob Trautman discussed in, Rutgers Law School and United Policyholders Launch Essential Protections for Policyholders Project.

Feinman studied how various states address and protect homeowners from paying more for insurance or being left without insurance. Below are the criteria used to evaluate consumer protection when it comes to property insurance.

Each state is evaluated based on how well it meets the Essential Protection standards for Use It and Lose It:

State law should prohibit an insurance company from using 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

as a basis for

  • not renewing a policy or
  • imposing a surcharge or premium increase

The results of this evaluation will likely not surprise frequent readers of this blog. Many times, Merlin Law Group has had to fight to keep insurance on a property in a damaged state because the carrier does not want that risk anymore, but without more consumer friendly laws, the carriers have a lot of power and can just raise the rates and make it impossible for some insureds to continue.

  • 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.

You can read the entire report here. Every insurance commission in the US has been provided a copy of this Essential Protections report and the recommendation is that each state work to enact laws that prohibit insurance companies from imposing a surcharge, premium increase or non-renewing a policy based on a single claim in three years. This should also be prohibited if the claim results in no payment by the company, or if the claim is caused by weather or a natural disaster. Further, there should be no penalty if a homeowner makes an inquiry that does not result in an actual claim. This will be very helpful and hopefully can expand to help condominiums and small businesses also faced with these problems on a regular basis.

Amy Bach chimed in and explained that without this protection, “insurance companies have put consumers at a costly disadvantage.” Bach suggests a simply remedy of enacting laws that mirror Rhode Island or Texas.

A future report on how states can help policyholders for unreasonable denial of claims is coming soon and will also be posted.

  • Bill Wilson

    Your insurance premium reflects the likelihood that you, or the group of exposure units in which you’re rated, will have a loss during the upcoming policy period. As one example, in the case of weather related claims, if such claims are actuarially likely to reoccur, then a premium loading could be appropriate. However, if a premium increase is being used as a means to recoup past claims payments, that is not appropriate and, if provable, is likely illegal under most insurance laws.

  • rogerpoe

    Nichole Vinson and Bill Wilson,

    Many insurers are utilizing Xactware’s 360Value data to determine future structural [component-by-component] replacement costs of structures, underwrite policies, and determine premium values accordingly.

    By Xactware – The financial foundation of the component-by-component replacement costs is based on General Contractors (average) replacement costs of structures.

    However- When insureds have a financial loss claim, insurers then utilize Xactware’s Xactimate data to pay out premiums values that do not actually reflect General Contractors replacement costs of structures. Insurers pay out loss claims based on General Contractors Sub-Contractors (average) replacement costs only.

    This contradictory financial indemnification equation naturally creates “illegal windfall”, as insurers charge consumers for prospective General Contractors higher priced services, but then “settle” claims based on General Contractors Sub-Contractors lower priced services.

    Construction business owners witness this unfair market conduct in Texas, and across the U.S., on a daily basis. As a general contractor in Texas – I too witness this market scheme.

    Premium diversion is the embezzlement of insurance premiums, whether it occurs by an insurance agent, or by way of an insurance adjuster. Charging consumers premium for prospective General Contractors higher priced services – but then “settling” claims based on General Contractors Sub-Contractors lower priced services – does Not equitably compensate insureds for actual financial loss values sustained.

    By such market conduct – Insurers divert/keep the [premium] replacement cost difference of General Contractors business models, verses, General Contractors Sub-Contractors business models.

    In short: Essential Protection should also include checking Insurers unfair claim handling practices that has turned claim settlement processes into an illegal windfall profit stream, and illegally diverts premium…Right?