Cancellation and Non-Renewal – Is there a difference?

Social media and the news feeds are full of stories with insurance companies cancelling policies. This headline makes for a strong click rate and generates a lot of heated commentary. As with many insurance related topics, the words have specific meaning, and the real story is not always as dramatic as the headline. 

Cancellation 

An insurance policy can be cancelled by either the insured or the insurance company. There are a few limitations on the cancellation by the insured. There are state laws and regulations that dictate the insurance company’s actions. Written notice is provided to the policyholder.  

Why would a company cancel my policy? 

• The most common reason for policy cancellation is nonpayment of premium. The company may offer a short grace period, but if they are not paid, the policy will be cancelled. 

• Misrepresentation or fraud on behalf of the insured is a reason for cancelling coverage. Concealing or misrepresenting information on the application for coverage is grounds for cancellation. 

• Changes in risk – a new product, process, or new business venture can cause a cancellation if the level of risk rises. This can include non-compliance with risk control recommendations.

• Violation of policy terms – improper conduct during a claim investigation or discovery of change in operations that are outside of the current policy are grounds for cancellation. Using vehicles for business use when they are rated personal use only is an example. 

The key element of each of these situations is an action, omission or change that the policyholder creates or initiates. Your insurance contract was based on information you provided at the time of application. Inaccurate information that changes your risk level is grounds for the carrier to cancel. 

Most states require a short notification period of the cancellation. The most common is ten (10) days. In some states the ability of the insurance company to cancel for underwriting reasons may be limited to a short time after the effective date of the policy. After that date, the non-payment of premium or violation of policy conditions are the reasons available for cancellation. 

Non-Renewal 

An insurance company may decide not to renew policies based on a wide range of business issues. Written notice of the non-renewal is sent to the policyholder. 

Non-renewals by the insurance company may relate to not wanting to write a specific coverage line; limiting the geographic area of coverage, claim frequency can be a cause for non-renewal and changing market and economic conditions that affect the insurance company. 

 In the case of wildfires the geography, line of coverage and economic factors are outside the control of the policyholder but impact the insurance company. It is in everyone’s interest that insurance companies are financially stable. The distribution of risk is impacted when fewer players are in the marketplace. 

The only factor that is in the control of the policyholder is loss frequency and severity. If you are unprofitable and there is not a reasonable path to changing that experience, you can expect to be non-renewed. 

State regulations call for a longer notice period of non-renewal, often a minimum of thirty (30) days before the expiration of the policy.

Impact of Cancellation   

The first impact is that coverage will be lost. The cancellation is immediate at the time and offers you a short time to take action. The non-renewal will offer a greater window of time to make new coverage arrangements. 

A cancellation can make obtaining new coverage more difficult. The first question on most insurance applications regards your history of being cancelled or non-renewed. Omitting an answer or offering a false answer to this question could be considered material misrepresentation and grounds for the next cancellation. 

For cancellations, the policy will have provisions for returning premiums if cancelled. Consult the policy for the premium refund calculation process.

Impact of Non-Renewal 

You will have more time to market your insurance program. Non – renewals come with at least 30 days advance notice. It is possible that your agent knows about the impending non-renewal in advance and can proactively market your business. 

Other than claim history, the other reasons for non-renewal are outside of your control. Other carriers will know what is happening in the marketplace and will have a position on the circumstance that prompted the non-renewal.  

Applications will ask about non-renewal status. Omitting the answer or providing false information is not a good idea. Every insurance company makes business decisions and those do not reflect on the individual policyholder.

What to do if you are Cancelled or Non-Renewed 

Call your agent immediately! In some cases, your agent may be able to get the decision reversed. Waiting until the policy is no longer in force limits your options and the ability of an agency to change decisions. 

Prepare to market your insurance program. Updating exposure information, vehicle lists, drivers list, payroll and sales information will make the marketing process smoother and more successful. Incomplete or missing information creates delays in a time when time is short. 

If the non-renewal is based on losses, be prepared to detail how the circumstances that created the losses have changed and the insurance company can expect better results. If the reason is data from a third-party provider such as roof surveys, have facts and documentation available to respond to the issue. 

The Driehaus Difference 

We carefully monitor the appetites and market direction of our insurance companies. We can be ahead of the curve when a carrier starts to signal a change in appetite or coverage availability. We can help you get ahead of the decision.

For cancellation we can ask for the carriers to offer another chance. In the case of nonpayment of premium, you may need to premium finance the balance to remove the credit risk from the insurance company. We will need accurate and timely responses to make a case for a change by the insurance company. 

We live in this industry and can help you navigate the sometimes choppy waters of the insurance marketplace. We want to be your insurance provider, so call us at 513-977-6860 or reach out to use via our website at www.driehausins.com