Unfair Insurance: Policies Cancelled, Rates Doubled, Homeowners Abandoned

Eastham, MADespite the fact that insurance companies continue to rake in record profits, homeowners by the thousands are seeing their policies cancelled or given the thumbs-down at renewal time, as their carriers try to limit future liability.

They can't afford another $40 billion hit like that of Katrina, the carriers say.

And so, over the past three years some of the largest insurance companies in the nation have pulled the insurance rug out from under three million responsible homeowners--people who have paid their premiums, some having never made a claim.

The move has left people scrambling to find a new carrier, if they can find one. And if they do, it's often at a higher rate and steeper deductible. Others have had their rates double overnight.

Some can't get insurance at all and are in danger of losing their homes, as banks will not maintain a mortgage on a property that does not have insurance. Officials in some states go so far as to say the crisis is negatively impacting the housing market.

A crisis indeed, in many states--and it's bound to get worse before it gets better.

Homeowners in hurricane-prone areas throughout the southern states and down through Texas have been the target of higher rates and cancelled policies for years, but now the northeast is seeing similar treatment.

The case of a retired couple on Long Island has galvanized the issue. As reported this week in the New York Times, James Gray and his wife Ann were forced to search for another carrier after Liberty Mutual Fire Insurance Company, the Grays' carrier for three decades, abruptly cancelled their policy.

The Grays live about 12 miles inland from the Atlantic Ocean: close enough for Liberty Mutual to say 'see ya later...'

Industry watchdogs are crying foul. In the Grays' case, Liberty Mutual drew the ire of New York Insurance Commissioner Eric R. Dinallo, after the carrier was found to be in breach of state law after suggesting that a consideration for the cancellation was the absence of an accompanying automotive insurance policy.

What's worse is that major carriers such as Liberty Mutual, Allstate and State Farm-- among others--have declined all new applications in New Jersey, Rhode Island, Connecticut, Maryland, Massachusetts, as well as eight downstate counties of New York.

Richard Blumenthal, the attorney general for Connecticut, is questioning the insurance companies tactics and position, and maintains that the industry continues to make "record profits." State officials maintain that the insurance companies are overstating the risk of hurricane activity in the Northeast.

In comments published today in the New York Times, State Senator Kenneth P. LaVelle doesn't mince words: "My concern is that this situation is being manipulated by the insurance companies in order for them to get higher rates."

Part of the problem, according to the director of insurance for the Consumer Federation of America, is that insurance companies have condensed their projections of risk. "They used to project 20 years into the future," Robert J. Hunter says, "but now it's more like four or five [years]."

The trend to cancel higher-risk policies--indeed, policies that carry little risk at all--have driven some people to the sub-prime insurance market. What's more, the growth of state-run insurance pools appears to be a burgeoning trend. In areas such as Florida and Massachusetts, state-run plans have grown to be the largest regional carrier--not a huge surprise for hurricane-prone Florida, with 1.3 million policies on the books after homeowners could not find insurance elsewhere.

However, this is certainly something new for the Northeast, which has seen its high-risk policies double in the last five years. Participants in the Massachusetts state plan have reached 200,000--which makes it the largest carrier. On Cape Cod, 44 per cent of policyholders are in the state pool.

Betty Clark may wish to be participant number two-hundred-thousand-and-one. The retired waitress who lives on a fixed income suddenly saw her rates double last year for the same coverage. The only way she can afford the hike is if her grown children help out with her premium.

In all her years with her carrier, the Cape Cod resident has never made a claim.

On Long Island, the Grays had been 30 years with Liberty Mutual when the carrier deep-sixed their policy due to hurricane events over the past two years forcing the company to limit their exposure to further losses.

No offer was made to reimburse the Grays for their 30 years of premiums.

Liberty Mutual, as all carriers do with all policy holders, happily accept premiums without provision for refund if a disaster is not forthcoming, or claims made. No matter-- such is the price to secure peace of mind.

A policyholder never sees that money back, unless there is a claim. The insurer gets to keep the premiums as a hedge against future disaster.

That's the way it works. If no claim is made during the life of a policy, then the insurer wins, having collected decades worth or premiums while escaping the need to provide any real benefit.

If there IS a claim the policyholder wins, even though you've already paid for the trophy.

Instead, the insurance company takes your money and runs.

And your thanks for 30 years of loyal premium support is abandonment.