Has your insurance provider ever canceled your policy?

Question

I manage a lot of rentals. One of my owners has been with Farm Bureau for about 25 years. They insure eight apartment buildings on three separate properties, 36 units in all.

We had a kitchen fire in 2018, tenant caused and the claim was around $3,000. We had a broken water pipe (old, not frozen) in 2019 that caused $12,000 in damages. And we had a roof damaged by wind and hail in 2019 that cost $15,000 to replace.

That's $25,000 in claims in the past three years, all legit. I estimate he's paid about 10x that in premiums since owning the property but Farm Bureau just sent a notice that they are canceling his policy because of the number of claims.

Has anyone else had this happen? Did you have a problem getting insurance from another provider? I have 60 days to find a new carrier.

Pat L. · Answer

We had a severe ice storm many years ago & a large bay window in the master bedroom was damaged beyond repair. The replacement was $2500 which they paid minus our $500 deductible so then they cancelled us. The premiums were $890/month on a $400k home so I asked why cancel us after we were with you 15 years & the fact we would stay current. They wouldn't budge so we cancelled the existing policies on ALL the other properties we had with them. That did not appear to make any business sense at all.

In the past we have been inundated with brokers wanting to quote & take our insurance business BUT in most cases once the old policy is cancelled the new insurer finds a way to nitpick via a driveby & insist on work done otherwise we would be cancelled. One wanted the factory white Aluminum trim of an outbuilding painted, then they wanted the air vents for a crawl space competely sealed to prevent rodent intrusion. BUT I reminded them we had rodent screening & sealing would cause mold & moisture issues. They denied coverage.

On some of our older properties with one carrier we have opted to exclude the roof in the policy to avoid cancellation due to what they perceive was a roof issue.

Meanwhile we have found one company here that seems to let just about anything fly, They have insured many properties for a fellow investor & we are very surprised by what they let pass.

Michael Noto · Answer

Personally I have not dealt with this, but it is eye opening. Thank you for sharing.

John Teachout · Answer

Insurance, whether on cars or homes is a pain in my neck. eg, I have a carrier that insures most of my rentals but won't insure those that don't have central heat. It's common in the southeast for older homes to use gas space heaters (wall or floor mounted) and these disqualify the properties for this company. I have another carrier that will cover those. On one property, they took some pictures of the property and the "inspector" (guy that takes pictures of the properties) said the roof had shingle issues and needed repair or replacement. I had been all over this roof doing some sealing around vents, etc and told the insurance company the roof was fine, wasn't leaking and I would take care of any issues when "I" decided it needed attention. They gave me x days to "fix" it and provide them with new pics. I took a few pics later and they said it wasn't the right angle. I told my agent that if they have a problem with my roof I'll just find a different company. So that was  about 20 months ago and haven't heard back from them since so I guess they had a change of heart.

Josh Smith · Answer

@Joe Splitrock

You are correct with the fact that the rates went up due to the storm in general and not your specific claim.

When it relates to catastrophic weather event (wind, hail, etc.) Insurance can't directly raise your rates for filling a claim. However, they will raise the rates for an entire area if there is a large amount of claims that they have to pay out (whether you file or not).

Erin Deann Martin · Answer

That's interesting. I recently shopped policies for my existing rental units + some units that I have under contract (as I periodically do). TX Farm Bureau wasn't able to match the quotes I got from two other providers, and weirdly, could only offer me a "dwelling only" policy (but included no liability coverage, no lost rent coverage, etc.). They stated I would have to buy a separate liability policy. I shared with the agent the other quotes that were more comprehensive (and I already have an umbrella policy). Their inability to compete surprised me since they've been great on primary policies for several friends/family and I know investors who seem to use them for rentals...

Keep in mind these are all relatively new units, in a populous area, less than 5 miles from a fire station, with smoke detectors, long term tenancy units, etc. Maybe their ability to cover rentals properly varies by state or community?

FWIW, I have several policies with USAA and have had legitimate claims (primary home) but never been dropped.

Jason Bott · Answer

@Pat L. unfortunately the underwriting cycle you describe is all too common.  The following is how I have seen it play out with so many carriers in the last 20 years,

1)) Insurance company becomes the low cost provider by choice or by default because the other carriers in the market have high rates or are pulling out.

2) The insurance carrier starts to get an influx of REI clients and their book of business gets "too heavy" with REI so they need to "balance" their book of business.

3) Step 1 of balancing their book is to tighten up underwriting on new business and maybe add 3-5% rate increase to current clients.

4) If step 1 doesn't slow things down, they will add additional underwriting guidelines to new & current clients and maybe a little more rate increase.  This includes nonrenewing clients who have a certain # of claims.5)  After a few annual cycles the carrier is now high priced and a pain to work with and they start to lose market share.

6) New management comes in, "Looks like the % of our REI book of business is a little low.  Let's loosen up our guidelines and file for lower rates and build this book back into balance!"  They now start to win business again.

I personally don't ever see this stopping.  In fact, I would argue it seems to be getting worse.  Only solution the consumer has is to not fall in love with any particular carrier and have your agent shop whenever you start to feel the price or underwriting pressure.

Joe Splitrock · Answer

@Nathan G. I had a hail claim on my personal residence a year ago. I am adding a new property and the rate is 25% higher. My existing properties will likely raise the same on renewal. My agent thinks it is related to the storm damage in the area and not necessarily me specifically. He did shop a couple other companies and rates where similar.

As far as cancellation, that can be a big problem. Insurance companies share claims information through databases, CLUE and A-PLUS. The scary part is they don't just look at the owner, they look at the property address. That means if you buy a property that has a claims history, you could have an issue.

I agree with you in theory that after paying in 25 years, having three claims is reasonable. Unfortunately insurance companies don't operate that way. They see you as a statistical risk if you have had multiple claims over a short period of time. All the money they collected over those 25 years paid other claims, paid operating expenses and profit. It is long gone and they just care about what is happening right now. Loyalty means nothing and neither does volume. Your agent may thank you, but the company could care less.

The best advice I can give people is don't place insurance claims unless the damage is really expensive. I cringe when people place $1500 claims. In this case, the second and third claims were large, so unavoidable. Start calling providers and get quotes. It may need to go on a risk policy with higher premium.

Nathan Gesner · Answer

They're successful despite their own ineptitude.

Curtis Mears · Answer

@Nathan G.

State farm sent out an inspector to my houses and took pictures of issues (what they thought were issues).  They even took a pic of some fascia damage on my personal property and said would cancel my policy if not repaired. After several letters I decided to shop insurance. Ended up saving big money by moving, so i guess I should thank them. Ended up moving 14 properties,  3 cars, and some umbrella policies all for some minor fascia damage.

Has your insurance provider ever canceled your policy?

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