Del. Restricts Homeowners Renewals, Requires ‘Gap’ Disclosure

August 7, 2005

Delaware Insurance Commissioner Matthew Denn wants to restrict insurers from canceling homeowners’ insurance policies because they have made a few claims and require insurers to more fully disclose to insureds whether they have coverage for floods, theft and replacement value on their homes.

He is also implementing a new law authorizing tougher penalties on insurance companies that run afoul of regulations.

The package is the first part of a “Focus On Homeowners” initiative by the Denn that will extend through August and September.

One of Denn’s proposed regulations would prohibit insurance companies from canceling a homeowner policy simply because of a few claims. The proposal would only allow “non-renewals” based on claims if there has been a “substantial change in the hazard or the risk” from the time that the policy was issued, or there have been claims for weather-related damage that are the result of the homeowner not making repairs that the insurer had asked for.

“It is unfair and, in my opinion, unethical for a company to cancel a policy simply because a homeowner has utilized their policy as intended,” Denn said. “After years of paying their premiums, that should not happen, and under this new regulation, it won’t.”

This consumer protection is important because claims are being added to a national database that is used by insurers in underwriting, Denn added.

“Non-renewals also label homeowners as insurance risks in a national database used by insurers and can lead to higher premiums and even more trouble getting adequate insurance,” Denn said during the announcement at the Keller Williams realty office in Dover. “And as the realtors here will tell you, making it tougher to get insurance makes it tougher to own a home, since it is a requirement for a mortgage.”

“This is an issue that we want to address in legislation as well,” said state Rep. Donna Stone, who attended the press conference. “But until we do, it is important to provide protections for homeowners from having the insurance policies they rely on cancelled.”

A public hearing on the proposed regulation will be held September 1.

Denn also wants insurers to tell consumers about potential gaps in coverage. Insurance companies are now required to send homeowners an annual notice about potentially costly gaps in the insurance coverage, but Denn wants these notices to go further and spell out for consumers what they need to do to get flood insurance, adequate theft insurance, and adequate insurance to cover the real replacement value of their home. The expanded disclosures from insurance companies will start in January, attached to homeowners’ annual renewal notices.

“There have been numerous stories in the national press this past year about families who have suffered total losses of their homes, or serious flood damage, only to find out that their policies don’t cover flood damage, as most do not, or that their policies will not provide them with enough money to rebuild homes that are damaged or destroyed,” Denn said.

“Many homeowners just don’t know that they have these gaps in their coverage. Now they will know,” he said.

Denn also announced he is implementing tougher financial penalties for insurance companies that are found to have engaged in bad conduct, as well as a shortened statutory time frame for responding to the insurance commissioner’s office when a consumer has made a complaint. The changes are a result of the signing of House Substitute 1 for House Bill 90.

Insurance companies can now be fined up to $300,000 per year for a pattern of unfair treatment of their policyholders, three times the previous maximum fines. Insurance companies also now have 21 days to provide a substantive response to the commissioner’s office when contacted about a consumer complaint. Previously, there was no statutory time limit on responding to a consumer complaint.

“These new fines and penalties for insurance companies will ensure that our laws and regulations are followed, because the cost of not following them has just gone way up,” Denn said.

Joining the commissioner at the announcement were Vincent White, president of the Delaware Association of Realtors; Fred Neil of the Delaware Manufactured Home Owners Association; and John Flaherty of Common Cause of Delaware.

Denn said he would unveil other steps in his “Focus On Homeowners” initiative over the coming weeks.

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Latest Comments

  • August 11, 2005 at 9:20 am
    Anna Tague says:
    I agree with fedup. Insured's never read their policies but are always calling because the premium is too high. You would think that after the contracts on home & auto were re... read more
  • August 9, 2005 at 8:31 am
    Fed up says:
    Every time I turn around I see another proposed rule or regulation requiring additional disclosure to the insured about what is and isn't covered. Here's a crazy idea for all ... read more
  • August 9, 2005 at 7:57 am
    Joe says:
    Great...now when Martha's kitchen mitts catch on fire she's going to be calling to put in a claim.
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