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Hailstorms and non-renewal of policies

Hailstorms and the vengeance with which they lash out are well known to residents of Missouri. If you live in a hailstorm prone area then you cannot help but keep filing for damages levied by hailstorms year after year. Of late however the number of non renewal notices after claims have been filed are on the rise.

For policies taken in Missouri itself the renewal cycle lasts an entire year. In this scenario it means that insurance carriers are creating a risk for the homeowners by not renewing the policies because of the frequency of filing claims given weather-related or "Act of God" damages.

In a nutshell, persons who filed any claim - regardless of cause, such as a windstorm or tornado - were considered greater risks to file another. Some carriers automatically non-renewed homeowners for filing a single claim (especially during the first year), indicating they based their rates on dropping anyone with claims. Other companies have discontinued coverage for homeowners who filed more than one claim in as much as 13 years; yet others were non renewing policyholders who filed their first claim after decades of business with the carrier.

These kinds of odds are daunting for all homeowners, each of whom could face the need to file a claim, particularly because of weather-related causes in Missouri.

Protection for homeowners? Not quite

Since this kind of behaviour undertaken by the insurance carriers had no precedent in Missouri, state law also contained no protections for homeowners who were refused a renewal. If a large geographic area is subject to more frequent tornados, insurers should factor that into basic rates for all homeowners, not by non-renewing those who happen to suffer damage or by surcharging only claimants.

In surcharges and non-renewals for weather-related claims, a policyholder is penalized for simply exercising his or her legal rights under the contract - by submitting a claim. Such stringent guidelines for renewal can only intimidate and awe people and lower public confidence in the carrier.

After non-renewals

Normally, non-renewed homeowners have little difficulty in finding coverage in 30 days, or the minimum notice prescribed by current state law. But in a "hard" market, a homeowner is hard-pressed to obtain coverage in one month, particularly if the property must undergo an inspection when agents or inspectors are available or if the first companies contacted decline. Simply put, homeowners cannot escape their claims record, not matter where they seek coverage.

For homeowners forced to seek coverage in the state's homeowner’s pool, the 30 days notice has become even more inadequate because the pool recently has been unable to finish inspections within 60 days for many applicants; the homeowner cannot risk taking no protection for such a huge investment.

Alternatives to the regular market

Homeowners who cannot find coverage after non renewals are left with four choices - none of them desirable:

1. Going without a cover for perhaps a once in a lifetime investment - a home. This option, however, is only available for homes that do not carry mortgages.
2. Forced placement by the lending institution. If a home is mortgaged but not insured, the policies that cover the bank / lender’s interest in the property will be very expensive.
3. The FAIR Plan, or Missouri Property Insurance Placement Facility, a joint underwriting association of insurers that provides "bare-bones" coverage for homes not qualifying for regular commercial coverage.
4. The "surplus lines" market. These largely unregulated, "surplus lines" insurers only need to meet financial requirements to operate in a state. MDI has little if any legal authority to exercise control over policy contents. Deductibles often are high but the premiums for minimal coverage are high too.

The FAIR Plan's inadequacies

When homeowners are refused cover or their policies are not renewed state law maintains that they should be notified and then enabled to contact the FAIR Plan or Missouri Property Insurance Placement Facility.

In 2002 the demand for FAIR Plan coverage rose considerably in this "hard" market. The FAIR Plan, however, underwrites applicants and rejects homes and owners who do not meet its criteria. The deficiencies of the Fair plan are evident in more crucial areas:

1. The FAIR Plan does not offer coverage suitable for most homes in either of Missouri's two largest metropolitan areas - or even the state as a whole. The plan only offers maximum coverage of $100,000 for structure and contents. In the current hard (or any) market, Missouri's last-resort insurer should have the capacity to provide coverage for the vast majority of homes.
2. The FAIR Plan does not offer true homeowners coverage with a liability component. An earthquake policy is not included as an endorsement.
3. FAIR Plan policyholders do not have the consumer protections afforded homeowners in the regular market.
4. The FAIR Plan does not act quickly enough so that homeowners can maintain continuous coverage of their properties. Current law provides 30 days notice of non-renewals. Consumers should contact other companies for policies rather than just stick to one. Only then should consumers apply for the market of last resort. However, the FAIR Plan has had difficulty processing applications within 60 days of receipt, not counting the time consumers shop elsewhere after receiving notices of non-renewals.