Will My Carrier Drop Me?
The Truth About Filing Homeowner Insurance ClaimsAngie Lewis, Writer
Many homeowners believe that their insurance rates will go up or, even worse, that their carrier will drop their policy altogether if they file a claim. However, that is not typically the case.
Because there are many factors and considerations regarding coverage and homeowners’ rights to coverage, we spoke with Crystal Harwell, training coordinator at SFY (Solutions for You), who helps roofing contractors navigate the often-complicated world of insurance claims.
As Harwell explains, there are two ways that insurance carriers can stop insuring you:
At the end of your policy term, your carrier may choose not to renew your coverage at all, or require that certain criteria are met (e.g., changing your policy type or resolving repairs on a claim, etc.) before considering a renewal.
At any point during your policy term, your carrier can cancel your coverage altogether, which is typically due to an unpaid premium or suspected fraud. In any case, the company is required to give advanced notice (usually 45 days) of the cancelation date, affording you the time you need to find coverage elsewhere.
The most important thing to know is: Filing a claim, on its own, is not typically reason enough for your carrier to cancel your policy or send you a letter of non-renewal.
Other factors include:
Did you know that insurance companies are investment companies? Before issuing a policy, insurers research data — such as location of the property, previous claims and the history of claims in the surrounding geographical area, and financial demographics — to assess their risk. Once a policy is issued, the paid premium goes into a liquid reserve for potential claims, while the rest is invested.
Carriers then continuously redetermine their risk, considering an area’s historical data and identified trends, the insured’s payment history and credit worthiness, and whether the insured has filed multiple claims in a short amount of time.
Carriers in some states can cancel or not renew policies in areas that have historically experienced expensive natural disasters, such as floods, earthquakes and hurricanes.
Animals on the property
If you have restricted breeds or other types of animals/pets on your property that are on a carrier’s exclusion list, it may determine that your policy does not fall within its risk guidelines.
When your roof hits a certain age, many carriers begin issuing non-renewal letters or require homeowners to change their policies to Actual Cash Value (ACV) or Roof Payment Summary (RPS) (see definitions below).
“In many cases, if a carrier threatens non-renewal after filing a claim, it may be for the best, as that carrier may be slow to cover damages for you were you able to continue,” Harwell says.
There are several types of policies, all of which, according to Harwell, “factor the relative lifespan of each component of the property they are covering, as well as its actual age, condition and obsolescence of the material (called depreciation).” These factors can determine the amount insurance carriers will pay out to homeowners when they experience a loss.
RCV (Replacement Cost Value)
This type of policy pays to replace items at current market price (for similar type and quality), in full, and does not deduct any part of the payout based on depreciation value.
ACV (Actual Cash Value)
This type of policy deducts the depreciation value of items and pays relative value (think: garage-sale price) based on their current condition. If the lifespan of items has been exceeded, the carrier may not pay anything for replacements.
RPS (Roof Payment Summary)
(“ACV policy in disguise”) Other coverages may be RCV, but for a roof replacement, the carrier pays on a sliding scale, which lessens as the roof ages.
Coverage: Additions and Exclusions
When purchasing an insurance policy, Harwell recommends looking out for an important add-on called Building Ordinance and Law, which, he says, “helps to ensure that if you experience a loss, that the policy will pay to replace the damaged items in accordance with the current building codes.”
Because contractors are required to follow current building codes in most situations, this additional coverage helps homeowners keep more money in their pockets during repairs.
Also, beware of included exclusions, such as a burst pipe or metal marring, for which homeowners would be responsible.
“Metal marring is a great example for roofs because it means that if hail damages your gutters or vents — or any other metal roof penetration — your adjuster may not cover the cost to replace that item and you may end up paying out of pocket,” Harwell explains.
“Agents will try their best to help you save money on your premium, while also reducing the risk for the carrier if you face a covered loss,” he continues. “One way they may do that is by including a percentage deductible. This means that if you experience a loss, your portion of the claim that you must contractually pay out of pocket will be a percentage of the policy face value, typically in increments of 1%, 2% or 5%.”
Example: $350,000 value policy
1% deductible = $3,500
2% deductible = $7,000
5% deductible = $17,500
“Don’t be afraid to ask questions!” Harwell says. “Lowering your deductible or adding a coverage that would be beneficial to you in a time of need may only make a $10 to $50 difference in the cost of your yearly premium. Ask your agent to break it all down for you.”