Insurance Policy Non-Renewed: Understanding How It Happened
An insurance policy non-renewed can be a sticky and unpleasant subject for any insured.
You’re going about your everyday life, minding your own damn business, and you receive a letter from your insurance company. Maybe it’s for your homeowners policy, your personal auto policy, or you own a business and this is for your business auto or General Liability.
When you open the notice, it’s urgent and serious. The letter begins with wording to the effect of “Notice of Cancellation, Declination, or Non-Renewal.” Then it’s blah blah blah, “we have decided not to renew your policy when it expires” on such and such a date. FULL STOP.
Insurance Policy Non-Renewed: The Notice
In most cases by reason of law, insurance companies are required to advise an insured well ahead of time in writing that their policy will not be renewed. Maybe it’s 30 days or maybe it’s 60, or perhaps somewhere in between. Whatever your state or jurisdiction’s regulation is, that’s the time frame.
This notice will contain the date of coverage expiration, and it must also contain a rationale for the non-renewal. At least in that respect, you won’t be in the dark on the insurance company’s reasoning.
Note that if you have an insurance agent, they should also be receiving these notices. As soon as they do, a good agent should either being “remarketing” your policy or advising you promptly that they no longer have a home for your business. The latter will hopefully give you adequate time to find a new agent or broker. Here’s the real tea: if they are doing the latter, it’s because (a) they really don’t have anywhere else to go, or (b) they WANT you to go. It’s probably (A), but even if it’s (B), cut your losses and move on.
Insurance Policy Non-Renewed: The Reasoning
Three words on a non-renewal notice you might see are “adverse loss ratio” or some derivative thereof. Your loss ratio is the proportion of premiums paid to claim payments. This is a common rationale, especially if you’ve had a claim of some size and your premium is relatively small. For better or for worse, the insurance company is telling you “it’s no longer profitable to write your policy.”
Another thing to keep in mind is that while one big claim can get you non-renewed (I’ve seen it), frequency of claims is just as important. From an insurance company’s perspective, if you’re nickel and diming them for smaller claims, market research suggests the big one is coming. Don’t be surprised if this happens to you if you’re calling the claim department often.
Poor payment history is another reason your policy might get the axe. If you frequently miss payments and go into “pending cancellation” status, you’ll be on a company’s radar. This means the company will cancel your policy if you don’t pay by a deadline. If you’re not careful, too many of these notices will prompt an underwriter to non-renew you.
If you’re really unfortunate, you might get non-renewed or cancelled outright for something like “material misrepresentation.” This is a gentler way of saying “you didn’t abide by the terms of the policy” or “you misrepresented to us on your application.” That’s not good at all. It can mean things like you didn’t comply with your policy audit, or you lied on your application. Pro tip: DON’T LIE ON YOUR APPLICATION.
Insurance Policy Non-Renewed: Not Your Fault?
There are also times a non-renewal might not have anything to do with a claim or payment history. For example, if you are the owner of an auto repair shop and have a Garage policy with Carrier ABC, you might receive one of these. Carrier ABC says they “have discontinued their garage program,” meaning they non-renewed every single policy of that type.
Perhaps the insurance company was losing money on that type of business, which is more likely than not the case. You’ll get a non-renewal like everyone else, and it will be up to you and/or your agent to replace coverage.
Finally, you may also receive a non-renewal if your insurance agent’s appointment with an insurance carrier ceases. An agent must have a contract in place with an insurance company to place business with them. Every now and then, an insurance company and agency will part ways, for whatever reason. All policies with that company will then be non-renewed.
In the future, we will go into examples of these non-renewals and if an insured should have a legitimate gripe with the carrier. It’s also not impossible that a non-renewal can be reversed.