Many Policyholders Losing Coverage, Others Facing Steep Rate Hikes

Sacramento, CA — Insurance companies are raising rates on homeowners who simply inquire about coverage and canceling policyholders who file a claim, according to the Foundation for Taxpayer and Consumer Rights (FTCR). Consumer groups point out that policyholders pay premiums year after year in order to receive coverage in the wake of a loss, but do not and should not expect to see their rates go up or have their coverage cancelled once they file a claim.

“If insurers threaten to cancel coverage as soon as a consumer tries to use their policy, then there is no point in buying insurance. The companies might as well be selling snake oil,” said FTCR’s senior consumer advocate Doug Heller. “Policyholders pay premiums on time, year in and year out, in order to have the so-called good neighbor there in a time of need, so it’s a shock to homeowners to get a higher insurance premium or, worse, a non-renewal notice after they file a claim.”

FTCR said that insurers are creating an “Enron-style” insurance crisis by restricting the availability of homeowners insurance in order to continue to increase insurance premiums to exorbitant levels. Many insurance companies are reeling from massive investment losses sustained in the wake of corporate collapses and the recession.

“Insurers lost their shirts on Wall Street and now the companies are reducing the supply of insurance and increasing prices to make up for their investment mistakes,” said Heller. “Two years ago Enron and the deregulated energy industry pushed electricity rates through the roof using similar strategies. California officials need to step in and protect consumers from an Enron-style insurance disaster.”

FTCR, which will provide testimony before the California Senate Insurance Committee today, says that the California Department of Insurance and the Legislature must use all options — including regulation, litigation and legislation- — to reign in the insurance industry and protect consumers from insurance company abuse. FTCR will present testimony that since the mid 1990s homeowners insurance companies’ loss ratios (the amount of losses paid out in comparison to the total premium dollars earned by the companies) have remained stable. This undermines insurers allegation that claims costs (as a result of mold, for example) are increasing faster than premiums and, therefore, undermines the insurers argument for rate hikes.

-30-