Filing a claim can mean loss of insurance

Home insurers more likely to raise your rates, however

3 claims in 3 years = trouble

Md. bill would require notifying those at risk

February 29, 2004|By Anne Lauren Henslee | Anne Lauren Henslee,SPECIAL TO THE SUN

Consumers might want to think twice before filing a claim on their home insurance policies, warns the Maryland Insurance Administration, because it could lead to higher premiums or even lost coverage.

A local lawmaker and some consumers are unhappy about that. They say they buy insurance to cover their property when something goes wrong and want insurance carriers to be forced to notify customers if they're in danger of losing their coverage.

Maryland law - like many around the country - generally prevents an insurance company from canceling or not renewing a policy if fewer than three weather-related claims are filed in a three-year period. But insurers can raise rates or not renew policies that subject them to an increased risk if they outline their reasons, state regulators said.

The slumping economy and several natural disasters across the country have caused most insurance companies to raise rates or drop homeowners who file too many claims. Many insurers inspect properties after claims have been filed to make sure homeowners are maintaining their houses.

Homeowners who lose their coverage often find it difficult to secure insurance in today's depressed market. Many companies are limiting the number of new policies they issue.

Randi Johnson, Maryland's associate commissioner for property and casualty insurance, said homeowners can avoid some insurance problems if they better understand the purpose of homeowners insurance and when to use it.

She would not specify a dollar figure for when it's advisable for consumers to file, Johnson suggested that claims for as little as a few hundred dollars should be avoided.

"The purpose of a homeowners policy is really to protect you for a catastrophe - a fire, your roof gets torn off your house, someone comes in and empties it out. What it is not is a maintenance policy," Johnson said.

"What every carrier is going to look at is your claims experience. If a homeowner makes three or four claims in a relatively short time - in the last three years - they're going to have a really difficult time getting insured, because no company is going to want to take on that risk."

Sen. Brian E. Frosh, a Bethesda Democrat, has proposed a bill that would require insurance companies to notify customers who have made two claims within a three-year period and who might be in jeopardy of losing their coverage. Insurance companies have opposed the legislation.

"You shouldn't be penalized for taking advantage of the coverage you have," Frosh said. "To me, that seems unfair. That's saying, `You're insured as long as you don't have any losses.' I mean, why are we buying insurance?"

Consumer complaints about insurance companies have been increasing. Last year, 6,192 consumer complaints were filed with the Maryland Insurance Administration's property and casualty office, 15 percent more than were filed a year earlier.

The insurance office held 188 nonautomobile-related hearings last year. It completed 44 orders and two consent orders that required companies to pay administrative penalties, settle related claims and, in some cases, reinstate canceled policies.

In 1964, Frances and Purcell Smith bought and moved into a one-story, two-bedroom home in Chevy Chase. They insured it for nearly 40 years with Travelers Insurance.

In 2001, Frances Smith filed a $289 water-damage claim. The next year, she filed a $100 claim for damage to her roof caused by a storm. She then filed a related claim in March last year for $63. Her three claims amounted to less than $500.

Smith said Travelers canceled her policy in March. The 89-year-old widow filed a complaint with the Maryland Insurance Administration, but it was dismissed because she had made three claims within three years. Johnson said that given the current insurance market, consumers such as Smith are better off saving their claims for catastrophes.

Smith's stepson Peter Smith said she "thinks it is grossly unfair that the insurance company failed to notify her that they might cancel her policy if she made several claims. She thought the claims were perfectly justified under her policy, and she had no idea whatsoever that they might cancel her if she made a couple of claims."

A Travelers spokeswoman said the company takes into account claims history and the length of time the policyholder has been with the company.

Eileen Pagano, a registered nurse who has had State Farm Insurance policies on her family's automobiles and home for more than 30 years, said the company threatened to drop her coverage after inspecting her house. She had filed about $5,000 worth of claims in the previous few years.

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