N.Y. Halts Insurers from Tying Coastal Home Renewals to Other Business

Insurance companies in New York may not refuse to renew homeowners insurance policies based on whether a policyholder has other business such as an auto or life policy with them, under a new order from the state insurance department.

Insurance Superintendent Eric R. Dinallo ordered any insurance company that has issued a notice of non-renewal on that basis to immediately rescind it.

Dinallo said the insurance department acted after receiving complaints from homeowners in coastal areas that their homeowners policies were not being renewed, in part, their insurance company said, because they did not have an automobile or life insurance policy with the company or an affiliate as of a certain date.

“We have moved to protect consumers today by immediately stopping the impermissible tying of renewals of coastal homeowners insurance policies to whether the homeowner has auto or other policies with the same company. Insurance law prohibits tying to safeguard consumer choice,” Dinallo said.

Dinallo maintained that in addition to harming consumers, the practice does not make sense for insurers.

“The insurance companies’ actions contradict what they are telling policyholders and regulators. They say they are trying to reduce their exposure to the risk of losses from hurricanes. But pressuring people to buy homeowners and auto or life insurance actually increases the insurers’ risk,” Dinallo said.

“This is obvious when one company’s plans allow it to renew a wood frame house – which is more susceptible to hurricanes – if the owner also has an auto or life policy, but not renew a brick house right next door because the owner has no other insurance with the company.”

The department reported that it has already directed two companies that it found were engaged in this practice to stop and has asked other companies to inform the state and halt the practice if they are doing it.

According to Dinallo, the information on the two insurers in violation of the law — which he did not identify— was brought to the state’s attention about 18 months ago under a prior superintendent but no final action was taken until now.

Dinallo said he ordered a “full regulatory and legal review” after consumer complaints surfaced, a review which resulted in this new order.

As a result of this review, the department’s lawyers decided that non-renewing homeowners coverage based on not having another policy with the company constituted an “unlawful inducement in violation of Insurance Law, and any notice using that reason would be invalid.”

Dinallo claimed that the two reprimanded insurance companies are aware of the law but tried to avoid violating it by setting a date in the past and making the renewal decision based on whether a homeowner had more than one insurance policy as of that date. He said the insurers claimed that this meant that they were not trying to influence any future decision by consumers.

The department’s lawyers disagreed, finding that such a notice “clearly states that the non-renewal is a direct result of the policyholder’s failure to purchase and maintain other coverage from the particular company.” They held that consumers who had been renewed “would reasonably infer that their insurance company might elect not to renew them on the next annual renewal date if they did not maintain their other policies with that company.”

The department urged consumers who have received non-renewal notices on the basis that they did not have other insurance with the same company to contact their agent or company.

“Insurance companies have the right to reduce their exposure to risks, such as hurricanes. But there are rules they must follow when they choose not to renew some of their policies. For example, they can only not renew a maximum of four percent of their homeowners policies statewide in any one year. The insurance department will ensure that companies follow those rules,” Dinallo said.

Agents applauded the action by Dinallo’s agency.

“In the middle of hurricane season, what we need is market stability,” said David Dickson, president of the Professional Insurance Agents of New York State, Inc. “On behalf of our members and their customers, we commend the insurance department’s actions. Superintendent Dinallo has identified the lack of underwriting logic in these non-renewals, as well as the unfair leverage they exert on the consumer.”

Dickson said a PIANY member survey conducted in downstate New York found that twice as many agents said their homeowners customers were experiencing more non-renewals in June 2007 than in June 2006. Dickson said he met with Dinallo and other department officials in July to present the survey results.

“Allstate, with a quarter of the total market, started this destructive trend in January 2006 by announcing it would non-renew a significant number of homes in eight downstate counties,” Dickson maintained. “Throwing such a large number of customers onto the street to seek new coverage impairs the ability of remaining companies to absorb new business. That’s why PIANY supports additional safeguards protecting policyholders against non-renewal.”

He said PIANY supports legislation sponsored by Assemblyman Robert Sweeney, D-Lindenhurst, and Sen. Kenneth LaValle, R-Port Jefferson, who represent Suffolk County residents. The bill (S.6069/A.2678) would give the NYSID more authority to sign off on non-renewal plans by homeowners insurers. Extra regulatory review would apply to companies that want to drop more than four percent of their customers in any given area over the space of a year.

The Independent Insurance Agents and Brokers of New York called Dinallo’s order “welcome news” for agents and consumers.

“Hopefully, this action will be a first step in helping to restore a stable insurance market,” commented Stephen R. Zogby, IIABNY chair of the board.

Sources:
NYSID
PIANY
IIABNY

Topics Carriers New York Agencies Legislation Hurricane Homeowners