Laws Require Insurers to Explain Cancellations, Rate Hikes; Restrict Use of “CLUE” Database

Insurers will be required to disclose to consumers why their homeowners’ insurance policy was not renewed and insurance companies will be barred from penalizing customers who inquire about coverage without filing claims, according to two bills signed into law by Governor Davis in recent days. In addition to compelling insurers to explain cancellations to consumers, AB 1191 (Wiggins), which was sponsored by the Foundation for Taxpayer and Consumer Rights (FTCR), forces insurers to provide a written explanation for premium increases, upon a consumer’s request. The inquiries-related bill is AB 1049 (Calderon/Wyland).

“Homeowners should not be punished simply for asking about their insurance coverage and they have a right to an explanation when their policy gets cancelled or their rates skyrocket,” said FTCR’s senior consumer advocate Douglas Heller. “With the new information required by AB 1191, consumers will be able to challenge unfair cancellations and rate hikes. As a result of AB 1049, homeowners are again safe to ask whether or not they have coverage for an incident without fear of retaliation from an insurer.”

Consumers have seen a dramatic change in the practices of insurance companies in recent years, a change that has been most pronounced in homeowners insurance. Specifically, policyholders have been aggressively penalized by insurers for filing claims and even for simply asking about the terms of their coverage (commonly known as “making an inquiry”). Some companies have been non-renewing longtime customers as a result of a couple of claims and/or inquiries over a period of a few years.

Insurers have also been denying new policies to homeowners who have previously made inquiries based on information that the companies purchase from the Comprehensive Loss Underwriting Exchange, or CLUE, a centralized database housing massive information about most American consumers’ insurance claims and inquiry history. AB 1049 makes it illegal to refuse to offer a policy to a customer or charge them a higher rate simply because the CLUE database includes information about past inquiries.

The two bills were part of a larger effort to reform the practices of homeowner’s insurance companies, which have been aggressively raising consumers’ premiums and canceling policies in the past two years. Consumer advocates note that the bills signed, while important, were only a portion of broader reforms that are needed. The state Assembly Insurance Committee killed two other reforms that consumer groups and Insurance Commissioner Garamendi had identified as essential to addressing policyholder’s problems. Those reforms, SB 691 (Escutia) and SB 64 (Speier), would have barred insurers from using customers’ credit scores in setting homeowner’s insurance rates and added new regulations protecting homeowners from unfair underwriting practices by insurers, respectively. Additionally, insurers have gone to court to block Department of Insurance efforts to regulate homeowner’s insurance,

“Insurance companies have gotten out of hand in their treatment of homeowners in the last few years and these new laws are small but important steps to rein in this industry. The industry still needs to change its ways and broader regulation of homeowner’s insurance companies is clearly needed; we will fight for it,” said Heller.
-30-