2007-04-12 / Editorial

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Laws protect coastal homeowners from insurance cancellation
By David S. Martin

Whereas there soon will be a gradual reawakening of those sleeping signs of more gentle weather, likewise has there been a gradual reawakening of property owners, on Jamestown and elsewhere, as they read dark and foreboding letters from their insurance companies canceling their homeowners policies.

As an insurance agency owner in a so-called "coastal community," I share the fury and frustration experienced by those property owners who have received these ominous "notices" from their insurance companies. I have been confronting insurance companies about these unreasonable, possibly illegal demands to cancel or nonrenew our clients' homeowners insurance policies since 1994, obviously to no avail. Until more recently, most of our policyholders were seemingly acquiescent in having their policies cancelled or nonrenewed, as if it were just too overwhelming to fight the big, bad insurance company. Now, however, after these nasty notices of cancellation and nonrenewal have been received by additional thousands of Rhode Islanders, acquiescence has fortunately been replaced by activism. There is nothing like a big whack in the pocketbook to get people's attention.

Rhode Islanders have not experienced a hurricane since 1991, yet many have read in the press how insurance companies have made healthy profits in recent years, including on homeowners policies. And then these same Rhode Islanders get their policies cancelled based on some hypothetical, computer generated hurricane of the future. And then the insurance industry encourages the agent (me) to tell our policyholders that the companies are justified to cancel, nonrenew, etc., because "if we get too tough on the insurance companies, the companies will 'pull out of the state.' I will not allow myself to be lulled into that silly argument again. It certainly is not the way to establish a bond of trust between the agent and the policyholder. Let the company "pull out," if that's what they want. The void will be filled one way or another.

Insurance is a "regulated" industry. Often there is a great deal of time, energy and money expended on debating the ideology of such regulation, but the fact remains that insurance is regulated - highly regulated - both at the federal and state levels. Accordingly, it is entirely appropriate for our State "regulators," and legislators to intervene in this matter. Now.

Curiously, there are some apologists for the insurance industry who would deny that these regulators or legislators should take a role in this matter. They say that the "coastal insurance problem will take care of itself." Whatever that means.

Rhode Island currently has a law that effectively prevents insurance companies from canceling or nonrenewing these insurance policies, known in the industry as "redlining." It is RI GL 27-29-4. Basically this law states that an insurance company cannot cancel or nonrenew a policy based on the "location" of the property. That seems pretty clear, but show that law to the insurance companies' lawyers and they manage to wiggle around it by employing specious wording that has successfully allowed the companies to continue their bullying tactics. "Cost of reinsurance," which is no more than an overhead expense, seems to be the insurance companies' most recent excuse for these cancellation and nonrenewals, but, when more closely analyzed, the reason is simply the "location" of the property, which is not legal under RI GL 27-29-4. The first step to protecting the property owners' interest would be the emphatic enforcement of the laws and regulations that already exist on the books.

I would offer three suggestions to RI policyholders who have been adversely affected by the actions of the insurance companies with regards to their homeowners insurance:

1). Call Mr. F. R. Boulay at the Department of Business Regulations (222-5465) and voice your concern. He wants to hear from you.

2). Contact your personal insurance agent and request his or her active participation in resolving this issue on your behalf.

3). Ask your local legislator to support the ongoing efforts of the recently-formed legislative ad hoc committee that is studying and hopefully will be taking remedial action to stop this abusive treatment by the insurance companies.

One thing is certain. Without meaningful intervention by the insurance-buying public, the legislature, and the regulators, the insurance companies will continue to hold us hostage.

Editor's note: the author is the president of Stearns Farms, Inc.

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