Historically Insurance companies lose money writing homeowners insurance in Louisiana. Not many companies can afford to be the cheapest option for too long. Sooner or later they will have to take a rate increase. Over the last few years there are some tactics that have become common in an attempt to get rid of customers in a certain zip code or parish.
Here are some tactics an insurance company can use to get you to leave.
You many think to yourself why wouldn’t they just cancel the policy?
The answer is after you have been with an insurance company for three years in Louisiana, the insurance company can’t just cancel the policy. In Louisiana there is a Three Year state law that an insurance company can’t cancel your policy for no reason. There must be a change in risk or some other legitimate reason to cancel your policy. Listed below are the only reasons a company can cancel a policy or non renew after three years.
D. No insurer providing property, casualty, or liability insurance shall cancel or fail to renew a homeowner’s policy of insurance or to increase the policy deductible that has been in effect and renewed for more than three years unless based on nonpayment of premium, fraud of the insured, a material change in the risk being insured, two or more claims within a continuous three-year period of time within the five years preceding the current policy renewal date*, or if continuation of such policy endangers the solvency of the insurer.
*The two or more claims are non-act of god claims (weather related).
So if an insurance company is not allowed to just cancel you when they want, they have a few other ways around the state law.
USE IT AND LOSE IT
The insurance company is happy to take your money each year as long as you never make a claim. Make one claim and now you get a cancellation letter. This is very common if you have been with your insurance company less than three years. Underwriting departments can decide that the premium they are getting from you is not enough for the risk and they mark the file to cancel if you make you claim.
Not fair to many but the insurance company is a business and they are in the business of making money.
If you become a new customer only to make a claim within the first 6 months, the insurance company has just lost money underwriting the risk. You would receive either a large premium surcharge at renewal or a cancellation.
Due to the Three year state law an insurance company has an incentive to get off the risk (cancel you) before the three year renewal period. If you are someone that makes a claim within the first three years you are more likely to continue making claims.
One thing to consider is when I mention claims, I’m talking about non weather related claims.
Weather related claims that will NOT affect your policy premium or renewal are hurricane, wind, hail, tornado, lightning..these are act of god claims.
Non weather related claims that will affect continued insurability are water damage, theft, fire, vandalism.
If you want to stay insured with your insurance company, you should call your agent before you make a non weather related claim and discuss your all other perils deductible amount and the amount of the repair estimate to determine if you should make the claim. Just calling the insurance company is not in your best interest.
If you purchase your homeowners insurance policy directly from the insurance company, you gave up the best free benefit to you and that is the professional guidance from an insurance advisor.
RENEWAL INCREASE MORE THAN 15% EVERY RENEWAL UNTIL YOU LEAVE
Some major insurance companies wanted to leave Louisiana because they stated they could not make any money in homeowners insurance. The Louisiana department of insurance would not allow them to cancel all their policies because they had such a large market share in our state.
Here were some tactics they used to lose their market share as a work around.
They put in place a rate increase every renewal until you decided to just leave and find another insurance company. Like clockwork rate increase in excess of 15% every renewal. Some customers didn’t even notice due to escrow renewal billing until years later.
The good news today is at this time we have a very competitive homeowners insurance market with over 20 insurance companies wanting to write new homeowners insurance policies.
The list is growing every year. This will obviously end after the next hurricane but some of these companies have no memory of any hurricane exposure and are writing new policies in hurricane prone areas offering hurricane deductibles as low as $500 or $1000. All the major insurance companies used to offer those deductibles too in our area but they got slaughtered and these new start ups will too. Not a question of if we will get hit from another hurricane, it is when. This year? Next?
If you have experienced rate increases in excess of 15%, it may time to take a quick look at what we can offer you.
RAISE YOUR WIND/HAIL OR HURRICANE DEDUCTIBLE TO 5%
A 5% hurricane, named storm or wind/hail deductible is not good. The insurance company is transferring a large amount of the wind risk in our area to you.
5% deductible is 5% of your Insured Dwelling Coverage A
250,000 house x 5% = $12,500 deduction off of the claim check.
Some of the major homeowners insurance companies sent a letter to their clients that they were changing the deductible. Most clients never read the letter and after our next hurricane they are in for a major surprise. Some customers are basically self insuring their roof for the next hurricane or named storm.
This tactic is not an immediate win for the insurance company but it will be after the next major weather event. Customers will discover the large deduction off of their claim check and will just move to another insurance company.
Take a look at your insurance declarations cover page and see what is your hurricane, named storm or wind/hail deductible. Take the % and multiply it by the insured value of your house. Most insurance companies don’t tell you the actual amount only list the % number.
EXCLUDE WIND AND HAIL PROTECTION FROM YOUR POLICY
Another tactic for an insurance company is to no longer offer wind and hail on your policy. They go to the Louisiana Citizens Fair plan or maybe another insurance and have you purchase a stand alone wind policy.
Not a good option for you from a service standpoint.
If you like the service you get from your insurance company, they just pushed you off to another insurance company or you’re left dealing with Citizens Fair Plan.
If you have to make a wind or hail claim, the response would be “that policy is not with us. You have to call the Fair Plan” or another insurance company they placed you with.
You will now have a “split insurance policy”. One for all other perils except wind and hail and another policy for wind and hail only.
For your convenience it is best to purchase a policy that protects you from all claims and right now the option is available to you. No need at this time to split your policies with two insurance companies.
THE SOLUTION TO THESE 4 TACTICS
Your homeowners insurance policy is not a maintenance policy or home warranty policy.
The principle of insurance is to protect you from a financially devastating event.
You need to adjust your all other perils deductible (not wind deductible) to a higher amount.
Have your deductible match the amount of money you have in reserve for a claim.
If you only have $500 in your checking account, any claim above $500 could be a devastating event.
But if you have access to $2,500 or $5,000 or even $10,000 raise your deductible to this higher limit and keep your wind/hail, named storm or hurricane deductible as low as possible.
In our area you are more likely to experience a wind event than a fire or water claim.
When you raise your deductible you will receive a large premium discount to transfer more of the risk to you instead of the insurance company.
The goal is take care of the small claims especially within the first three years of your policy to avoid a large renewal increase or a non-renewal issued.
Use your trusted insurance advisor and ask “What if” questions before you just call your insurance company. If you have an agent, use his professional knowledge of the insurance company they represent. If you have a $2500 deductible but your estimates are coming in at $2800-$3200, maybe you don’t want to make that claim.
Claims will stay on your record for 3-5 years and will prevent you from moving freely to another insurance company without either being surcharged for your claim history or being denied acceptance by their underwriting department.
The majority of home insurance companies writing new policies today submit your claim history to a CLUE report at Lexisnexis.
They agree to share your claim history into a central database where all other insurance companies can access to help improve their pre-underwriting efforts to determine if you are a good risk to accept.
If you are ready to see what we can do, my name is Tim D’Angelo and I would like the opportunity to talk to you about your homeowners insurance.
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