The Agony of Cancellation


I am always interested to read an article about insurance company cancellations.  They are not as simple and quick as they are often made out to be.  In fact, as an underwriter, I often agonize over cancellations.  It is something that keeps good underwriters awake at night.

Why is it so agonizing?  Well, mostly because it is a long frustrating process involving many different parts.  The first step in any cancellation is customer service, claims or during review of renewal policy b information.  It is here that some infraction against the company guidelines reveals itself.  Then the next step is research, either through policy notes, internet services (i.e.: ISO, Lexis Nexis) or risk/claim reports.

The Process

At that point the company sends out letters to the insured giving them the opportunity to explain company findings.  Personally, I usually give them at least three shots at responding before I take action.  I have been known to call them directly or get their agent involved.

Believe it or not, there are insureds who do not respond.  If I had to give a ratio, I would say one out of five will not respond.  That is when cancellation or non-renewal lands on the table.

Unless there is serious fraud, most companies prefer non-renewal to mid-term cancellation.  Better yet, if a conditional non-renewal is possible that is sought-after.  For instance, it’s better to remove an item or coverage from the policy and retain the business, than cancel out the entire policy.  Granted, this is sometimes unavoidable.

The next step

Once the cancellation or non-renewal process starts, all states require insurance companies to follow certain guidelines when cancelling a policy.  Insurers must provide written notice and state a reason for the cancellation.   There is also a specified time period to notify the insured.  It varies state to state.  As an example Maryland requires 45 days; whereas Texas requires 60 days.

If the insure responds during the time period with the requested information or an acceptable explanation then the policy would then be reinstated; however, if their response reveals something more odious, the process starts all over again.  Another words, the underwriter must reinstate the policy and start fresh with a different reason for cancellation, non-renewal or conditional non-renewal.  You can see this becomes a bit challenging.

The final axe

Of course, sometimes the underwriter cannot help the cancellation.  Maybe the insured has decided not to pay the policy or not to renew the policy.  In some states, like New York, the insured gets an extended period to pay.  In all states, the agent and/or the insurance company has a duty to follow up with the insured whether through a letter or phone call.

Then there is the insured who has failed to pay the renewal and comes into see their agent well after any extended period to obtain a reinstatement because they have had a claim during the lapsed period.  Better yet, the insured that reveals a breach to the guidelines during the reinstatement process.   Now the company must decline to offer a reinstatement.  This can become messy and litigious.

The exception to the rule

Finally, there is one other reason why a policy may be non-renewed.  The underwriter or customer service may refer to these as ‘rollovers’ or ‘cancel-rewrites’.   This happens in specialty insurance and health insurance primarily.

For instance, the MGA may have changed underwriting companies; therefore, they cancel your current policy and start a new one with the new company.  Under health insurance, perhaps the insured no longer qualifies under one plan and now must be placed into another.  A good example, at the end of 2014, many health insurers cancelled policies and moved them over into plans under PPACA or Obamacare.

In these cases an underwriter had to sit and review all these policies to double check the qualifications, the state guidelines, or the notes on the policy.  Please understand, underwriting computer programs do very little.

However to approach the process of cancellation, non-renewal, conditional non-renewals, non-payment, or rollovers, the whole process can be agonizing and aggravating for all parties concerned.  It deserves a lot of hand holding and patience.

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