Why Insurance Carriers Cancel Coverage
By: Mary Thompson, Capstone Brokerage President December 11, 2014
A cancellation is the termination of a policy at a date other than its expiration date. Clients often call our office wondering why they are receiving a cancellation notice from the insurance company. There are several instances in which Insurance companies have the right to cancel coverage, the most common reasons are as follows:
– Non Payment
If a business chooses to not pay their insurance premium, they should expect a cancellation notice. Standard practice is for a written notice to be sent to the insured. Typically, this is a 15 day notice with a 3 day mailing allotment. This essentially gives the business an 18 day notice of intent to cancel. Every Insurance company sets their own standards for how soon after a payment is missed, but this is the industry average.
The solution to avoid this type of cancellation is to pay your bill on time.
– Non Compliance to an Audit
Often times when an insurance company sets forth an audit of a business they will set requirements to the business to comply with from the findings during the audit. If the business chooses to not become compliant then they should expect a cancellation notice.
Example of cancellation for non compliance to an audit: A business estimated their payroll to be lower than it was, so the insurance company may require the business to pay a higher premium for the calendar year the business was audited. If a business does not comply they should expect to be given a cancellation notice.
The solution is to follow the insurance company’s guidelines and make required changes after the audit process.
– Too Many Claims
A business that has excessive claims may be informed of cancellation 60 days (typical time frame) prior to the scheduled renewal date. The reason for this type of cancellation is for the insurance company to determine if they do not wish to insure a business because of the amount of claims toward the policy.
A great example would be a company that has a commercial auto policy in place. During the policy year, several accidents involving vehicles, or drivers listed on the policy, may have resulted in claims payments.
Note: A policy will not be canceled because of excessive claims mid policy term.
The solution for too many claims is tough because each situation is so unique. However, business needs to be sure they are OSHA compliant, have an employee handbook, and follow safety guidelines to help avoid excessive claims.
– Non Responsiveness
If an insurer express to a business that they need to complete a task in order to remain complaint, and the business ignores this request, the insurance company has the right to cancel for non responsiveness.
An example is if the insurance company who provides property insurance to a business requests that the company has the fire suppression system checked in the building, but the business ignores this request. If this occurs they will more than likely receive a cancellation notice from the insurer.
The solution is to follow requests for compliance and be responsive to the insurance company.
– Midterm changes to the scope of operations
Insurance companies can cancel policies based on the changes to the scope of operations that are not outlined in the original application or requested to be added to the policy.
An example would be if a company starts out thinking they are going to provide a specific service, but over the year they decide to expand.
An Example is a plumbing company is coded as a commercial plumber, but decides they also want to offer residential services mid year.
The solution is to know the scope of work that the company intends to have. If mid-term changes must take place be sure to notify the insurance company right away.
– 60 day non renewal notice
Non renewal can happen for any of the reasons mentioned above, but it may also happen because of changes to the insurance company itself.
An example is that sometimes the insurance company may choose to no longer write coverage for a certain risk category.
There is no true solution, unfortunately. The business has no control over this factor and will be given a 60- day non renewal notice.
It is the most helpful to have a knowledgeable agent to be sure the information a business provides is thorough and complete. Cancellations are never a fun thing to receive on a business insurance policy. Although cancellations are sometimes out of the businesses control, providing the insurance company with accurate information during the application process is key to avoiding the dreaded notice.
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