What reasons can an insurance carrier use to cancel a company's coverage and what can business owners do to avoid this frustrating situation?
Insurance can be a challenging product and requires a significant ongoing commitment by all parties involved. This includes the customer, the broker, and the carrier that ultimately provides coverage. The carrier is often on the hook for a lot more money than it collects and is subject to complex regulations in each state it operates. At the end of the day, everyone involved in the insurance industry is trying to make a profit just like any other industry. Inevitably, the pursuit of profit will lead to carriers cancelling coverage for certain customers. However, the carriers can typically only cancel coverage when the customer isn’t holding up their end of the deal. So lets dig a little deeper and learn exactly how insurance cancellations work.
Before we discuss the most common ways an insurance policy can be canceled, we need to first mention that non-renewal is not the same as an outright cancellation. Non-renewal simply means that an active policy will not be renewed once the term expires. This can happen for a host of reasons, but more often than not it’s the result of either the insurance company learning about a new exposure that exists for the customer or the insurance company deciding to exit an industry or coverage line entirely. Regardless of the reason, you will always receive notice of non-renewal within 30-90 days of the policy expiring.
The first way that insurance policies can be canceled is if the customer fails to make the payment or makes multiple late payments. Non-payment should be an understandable reason given the fact that businesses can’t provide their product for free. Further, when customers fall behind their premium payments, the other companies insured by the same carrier are affected because the risk being carried is no longer adequately capitalized. Each state has different rules around when an insurance company can cancel for late payment, but it’s usually around 10 days. For customers to protect themselves they need to make sure they always pay on time. At Layr, we understand that paying insurance premium is a huge cashflow burden. That’s why we allow our customers to pay their annual costs monthly and on a credit card. This is just one of the many great benefits you’ll be able to depend on when you become one of our clients.
visibility_off Inaccurate Application or Renewal Data
The second way that policies can be cancelled is if inaccurate information is provided during the application process. This can be intentional or unintentional misrepresentation but, either way, it renders the calculated premium invalid resulting in grounds for cancellation. In cases where the customer unintentionally provides inaccurate information, the carrier may, and usually will, work with the customer to correct the inaccurate information and recalculate the correct premium allowing the coverage to remain in force. However, this circumstance becomes drastically more challenging if the inaccurate information is discovered after a claim occurs. Finally, if the misrepresentation was intentional, the carrier will most likely cancel the policy retroactive to the date coverage first became active while notifying the proper authorities. Intentional misrepresentation is deemed to be fraud and is considered a felony. We can’t stress enough how important it is to be accurate when applying for insurance.
repeat Repeating Claims
A third way that an insurance company can cancel your insurance is if your business has too many claims of a similar nature. When this occurs, customers become understandably upset. Unfortunately, having the same type of claim over and over likely demonstrates that the customer is not making a proper attempt to prevent the claim from occurring. At the end of the day, having repeated claims reduces an insurance company’s profits which leads to the insurance company dropping the customer. Like the others, this cancellation reason varies by state and usually 60-90 days of notice must be provided in advance to give the customer enough time to find a new insurance company.
There are going to be other reasons why insurance companies might cancel a customers policies, but these are the three most common and also three that can be prevented. So long as a company pays its premium on time, doesn’t knowingly provide inaccurate information during applications and renewals, and does their best to learn from their claims to prevent them from happening again, they can expect to avoid being faced with any of these three frustrating cancellation situations.
How Good Brokers Help
While the chances of having your insurance policies cancelled remain low, you can’t underestimate the ability of a good broker to advocate on your behalf while leveraging their good standing with underwriters should you receive a notice of cancellation. So far at Layr, only one of our customers has ever been in danger of being dropped by one of their carriers and it was the result of inaccurate information provided by the prior broker. We stepped in and worked directly with the carrier to explain that our client had fired their existing broker and that the inaccuracies had been remedied. This combined with our positive track record with the insurance company led to the underwriting team reversing their decision and our client keeping their policies.
Can a customer cancel their own insurance before the end of the term?
This is a common question brokers are asked and one the insurance industry doesn’t always do a good job of answering. The short answer is yes. Insurance is technically a minute-by-minute product. In other words, the product is delivered by the minute. While commercial policies are almost always quoted and often paid annually, customers are allowed to cancel coverage at any point during the policy term. However, there is a negative impact to cancelling coverage before a policy term expires. It might prevent the cancelled carrier from ever insuring that business again and could impact the willingness of underwriters from other insurance companies from insuring a company if there is a history of customer initiated cancellations. We’ll discuss, in more detail, the potential impacts of cancelling your business insurance in a future blog post.