Where’s my health insurance? You’re raising my rate by how much? Sometimes insurance issues take us by surprise. We’ve rounded up some real-life situations where insurance took a scary turn.
What nerve: Employers secretly cancel the company health insurance. Desperate times call for desperate measures, and sometimes employers will stop paying their group health insurance and fail to inform employees.
“We have had cases where the employee goes to the doctor and is told that their health insurance wasn’t paid. They then go to the human resources department to find out what happened and they learn that the policy had been canceled two to three months prior, even though it is still being pulled out of their paycheck,” says Lisson.
It’s a criminal act of insurance fraud for an employer to fail to notify employees that their health coverage is being canceled, but that’s of little comfort to the workers.
Did I say that? When a phone inquiry goes on your record. Say you have wind damage to your fence and you call your insurance company to find out if it’s covered. It would be, but you decide to fix it yourself rather than pay your deductible. Then when you go to shop for homeowners insurance from other companies you find out that your phone inquiry was recorded as a claim that’s on your record!
Few people realize that sometimes an insurance company will count an inquiry over the phone as a claim. You would think this practice is illegal, but not so, says Bob Hunter of the Consumer Federation of America.
“This practice varies depending on the economic climate. When the industry is doing well it rarely happens. When the industry is doing poorly, the chance of this happening goes up,” he says. “But the good news is not all companies use these tactics.”
If this happens to you, “Word of mouth is best in that situation,” says Hunter. “It may not help your [own situation], but it may help in warning others away from a company that uses this tactic.”
Attack of the killer auto insurance rates! When choosing a auto insurance company, most people forget to ask about its “surcharge schedule” — a predetermined premium increase that’s charged if you cause a car accident. Some companies will increase your rates by a shocking amount.
Let’s say you had a spotless driving record for the past 15 years. Last month you caused an accident. Now there’s a claim on your auto insurance in order to pay for damages. You suspect your rates will go up at renewal time, but what’s a standard increase after just one accident?
Many auto insurance companies follow the Insurance Services Office’s (ISO) standard of increasing a premium by 20 to 40 percent of the insurer’s base rate (which is the average rate charged in the state before discounts and other adjustments, plus the insurance company’s claims-processing fee). But not every insurer adopts this recommendation. AAA Auto Club has been known to charge an increase of 30 percent after the first accident and 150 percent after your second. Progressive has been known to charge 29.5 percent after the first accident and 56.2 percent after the second.
Don’t be taken by surprise. Demand to see the surcharge schedule and then ask your agent this specific question: “If I have an accident within the next 12 months, what would my end premium be without discounts?”
Haunted by someone else’s homeowners insurance claims. If you purchase a property on which the previous homeowner made a number of claims, it could cost you. That property’s track record will follow it onto your new home insurance policy.
How does this happen? When you apply for homeowners insurance, your insurer will request a report called a C.L.U.E. report to determine whether you, the buyer, or the seller have filed any claims during the past seven years. The database also includes damage reports that were later closed without payment when the owner made the repairs himself. A claims history on the property can affect what you pay, even though you just bought it.
Unfortunately, you can’t order a C.L.U.E. report if you are not the current homeowner. Prospective buyers aren’t allowed to request a C.L.U.E. report for a home they want to purchase.
Insurance vanishes on vacant houses. You’re visiting your ailing grandfather at the nursing home and you open his mail only to find that his homeowners policy has been canceled based on non-occupancy. What do you do? Now, imagine having your home foreclosed on and going through the nightmare of getting it out of foreclosure. Out of the blue, you receive a notice from your insurer stating your unoccupied home is now considered a hazard, and they have canceled your policy. Now what?
This is what happened in November 2008, when the New York Department of Insurance had to step in and issue a warning to insurers to stop canceling policies on foreclosed and otherwise unoccupied homes.
Following numerous complaints by consumers about cancellation notices, New York launched an investigation and found that insurers were canceling policies on the grounds that the lack of occupancy fell under the “physical changes” clause in the policy language.
The insurance department reiterated to insurers that cancellation of policies based solely on the basis of non-occupancy is illegal. According to the circular letter sent to the offending companies: “Insurers may not use foreclosure action as a basis to cancel a homeowners insurance policy. Filings do not constitute a willful or reckless act of omission or increase the hazard of an insured property.”
If you believe your insurer has illegally canceled your policy, contact your state’s insurance department.
Yikes! Is that my policy? Perhaps you read your policy when you first bought it, but do you slog through the notices of coverage changes and endorsements at each renewal time? Most people don’t.
“Insurance companies are well aware of this and they know that customers rarely read their renewal notice. When that happens, the customer is often unaware that they have lost some coverage,” says Hunter. “Those fine details are introduced along with the renewal date buried somewhere in the letter.”
For example, if you haven’t been paying attention in recent years, you may not be aware that you likely have reduced coverage for mold, windstorm and hail damage and, in California, reduced coverage for wildfires.
Gone missing: Your life insurance cash value and your agent. If you’ve purchased a Variable Universal Life Insurance policy (VUL) and the cash value has tanked because it’s linked to stock market performance, it may be shocking to realize the agent who sold you the policy never pointed out that the death benefit could vanish. Given the turnover rate at some insurance agencies, you could end up with a policy dead in the water and no agent with whom to follow up.
Where the rubber hits the road
Large insurers process thousands of claims every day, some doing a better job than others of keeping customers happy under trying circumstances that can involve totaled cars and destroyed houses. Slow claim payment is the No. 1 complaint among auto and homeowners insurance customers, according to the National Association of Insurance Commissioners.
“Claims tend to be the department people complain about the most since they do not know when they got a bad deal on an insurance policy until it’s time for the insurer to pay up,” says Hunter. “Insurers cannot be faulted for taking a hesitant approach to claims since the occurrence of claims abuse is not the insurer’s fault. However, claims delays are one of the more prevalent complaints. Unless a national disaster has occurred that justifies a long delay, it is really unacceptable to not receive a response from the insurance company.”
“The claims department is where the rubber hits the road in the payout process,” confirms Bob Lisson, Deputy Commissioner of Consumer Services Division for the North Carolina Department of Insurance.
The power of consumer complaints rests with your state’s insurance commissioner, who has the authority to fine insurers for bad or misleading practices.
“Every state has ‘twisting arms ability,'” says Hunter. “Most state insurance departments don’t like to use this ability and primarily serve as an intermediary to get the complaint from the consumer to the insurance company and help in initiating a response.”
