Navigating Homeowners Insurance With Claims History

Research suggests 12% of homeowners in the United States don’t have home insurance,  and there are various reasons for this. [1]

• Prior claims: If you’ve filed too many prior claims, you may have difficulty getting affordable homeowners insurance.
• False claims: Some people submit false claims and get caught. That’s an easy way to keep future companies from offering coverage for your home. It can also come with hefty criminal and civil penalties.
• Risky homes: Some homes are considered high-risk because they need repairs. The homeowners won’t be able to get insurance until they fix the damage and lower their risks. People who can’t afford to make these repairs may have trouble getting a policy.
• High-Risk area: Some homeowners in states such as Florida and California have to file repeated claims due to a barrage of natural disasters, such as wildfires, hurricanes, and flooding. In some cases, entire communities file substantial claims, including total loss of homes and personal belongings. Insurance companies are leaving these states, and it’s difficult for residents to get the coverage they need.[2] 

Here’s what you need to understand about the landscape of homeowners insurance. 

What to Do When Your Policy Application Is Denied 

You applied for homeowners insurance, and the company rejected your application. While it’s discouraging, you still have plenty of options. Slow down, take a deep breath, and follow these steps:

Understand Your Insurance Denial 

Your application for a policy may get rejected, or you may receive a letter of nonrenewal. In Oregon, for example, insurance companies must give 30 days’ notice before rejecting a homeowners insurance renewal.[3] Use this time for research. 

Whether your application for insurance was rejected or you received a letter of nonrenewal from your current insurer, the following issues may be to blame:[5]

• Extreme weather conditions in your area 
• High crime rates around your home 
• Old electrical or plumbing systems that can cause damage 

If you can’t get homeowners insurance because you’ve filed too many claims, you’ll know. Every time an insurance company starts, finishes, or denies a claim, they report that information to LexisNexis. That organization compiles a Comprehensive Loss Underwriting Exchange (CLUE) report.[4] A CLUE report is an information-sharing tool that shows underwriters up to 7 years’ worth of a person’s personal property and auto insurance claims.[7] The tool also determines a risk score that can help underwriters decide whether an insurance company can provide coverage for a person. An insurance company may review the CLUE data and decide your home is too risky to insure. 

Strategies for Overcoming a Denial 

If your claims history is to blame for the rejection, request a copy of your CLUE report and contest any data that seems inaccurate. This is a smart move, as it could ensure that another insurance company doesn’t reject you for the same (false) reason. Lisa Koosis, a former claims specialist, says, “You’re entitled to a free copy of your CLUE report once each year. You can request it by phone, email, mailed form, or online. Visit the LexisNexis website for specifics.”

If your claims history isn’t to blame, but extreme weather conditions are a problem, contact your state insurance department and ask about available consumer assistance programs and resources.[8] You might be referred to one of the following types of programs:

• FAIR plans:[5] Fair Access to Insurance Requirements (FAIR) plans are designed to make insurance available to homeowners in areas at high risk of flooding, fires, etc. They’re more expensive than standard plans, and they offer less coverage. 
• Beach/Windstorm plans:[5] Seven states, including Alabama, Florida, Louisiana, Mississippi, North Carolina, South Carolina, and Texas, offer beach/windstorm plans that can supplement or replace FAIR plans. Georgia and NY provide similar coverage. These plans are very expensive but offer less coverage. 
• Surplus lines:[6] Some people buy surplus lines when they can’t get standard insurance. Surplus lines are plans offered by nontraditional, unlicensed companies that cover risks that traditional insurers typically don’t cover. Traditional agents can sell these products, but they come at a higher price point. 

While these programs can be helpful for people who can’t get any other types of insurance, you must apply for them and meet specific requirements. While every plan is different, typical requirements include:

• Prior denials: You must prove you can’t get insurance through the standard marketplace. 
• Good financial health: You must verify that your property isn’t subject to back taxes, penalties, or liens other than a standard mortgage lien. 
• Good legal status: Your property can’t violate building, housing, air pollution, or sanitation laws. 

Keep in mind that these plans aren’t ideal. As one executive director of a FAIR plan puts it, his products are the last market of choice for consumers.[9] They only get this coverage when nothing else is available. 

Proactive Measures That Could Prevent Denials 

No one wants to deal with a lack of homeowners insurance coverage. While you can’t guarantee every company will provide you with the plan you want, there are a few things you can do to reduce your risk of rejection. 

Read through your denial letter very carefully. You may spot issues you can fix. For example, if you’ve been denied due to old electrical systems or live in a high-fire area, you might want to replace your roof and siding with fire-resistant products. If you make these repairs, you might be able to get a company to reconsider your application or make it easier to get the next application approved.

Look over your old insurance bills and compare them to the amount you’d pay if you have to get coverage through an alternate plan, such as FAIR. If the amount you’ll save is more than or equal to the cost of the repair, it could be a good investment. 

If you can’t get an affordable homeowners policy due to prior claims, you may want to reconsider how often you file. Instead of submitting claims for minor problems, you may be better off paying for the repairs yourself. As companies see your reliance reduced, they may be more willing to take a chance on you. 

Explore Alternate Insurance Programs 

The best homeowners insurance plans come from a standard marketplace. You may have more options (and more affordable options), but they won’t necessarily be at a small cost, especially in high-risk areas. Using a different type of insurance can be a shock to your system. 

One family who switched from standard insurance to a FAIR plan once paid $1,800 in premiums and now spends more than $6,000.[10] This family is considering dropping insurance altogether due to the high cost. 

Some people apply for alternate programs because they can’t get standard coverage. Every program is slightly different, and so are the plans and required documents. Follow each step carefully, and don’t be afraid to ask questions. 

Other people are in force-placed insurance.[12] Your creditor or lender finds the plan and enrolls you, even if you don’t want the product. You must pay for the plan, and the coverage is costly. Typically, the program only covers the structure and not any of your belongings. 

While you’re enrolled in a force-placed plan, keep looking for insurance through the standard marketplace. If you can find a plan, gather all the relevant documents and give them to your insurer. Ask them to cancel the forced coverage as soon as possible.[12]

Help for Homeowners in High-Risk Areas 

Every area is different. The challenges homeowners in Florida face are very different from those in California, for example. For that reason, there’s no one-size-fits-all approach to disaster preparation. 

Contact your insurance company and ask what changes you could make to improve your home’s chances of withstanding the next threat.[14] Your state insurance department may also have a list of recommended improvements that could help your home become more resilient.[8] 

Document every change you make, and share them with your insurance company. Experts say upgrades may mean lower premiums, but the amount you could save varies widely, depending on what you changed and how much your home is worth.[15] 

Complex Insurance Policy Language Decoded 

When working with insurance companies, you’ll want to speak like an expert. Understanding a few common terms and phrases can be helpful.

Some terms used in policies involving high-risk properties include:[16]

• Actual cash value: This is the amount your insurance company would pay to replace your home, with depreciation subtracted.
• Additional living expenses: If a covered event forces you to live outside your home, your insurance company will help pay for the stay. 
• FAIR plan: This is an insurer of the last resort if you can’t get coverage in the standard market. 
• Rating plan: The rating plan is a system that helps insurers weigh risk to determine a policyholder’s premium.
• Replacement cost: This is the amount your insurance company will pay for the true cost of repairs or replacement with materials of similar kind and quality. 
• Standard market: This is the typical market of homeowners insurance companies. 
• Surplus lines: Surplus lines are nontraditional insurance for higher risks that standard insurers decline. 
• Underwriting: This is an insurance company’s process of assessing risk and determining premiums. 

What About Home-Based Business Coverage?

As you’re examining your policy and looking for a new partner, consider your workplace. If you conduct your business from home, you may need more than a standard homeowners policy can provide. 

A typical homeowners policy covers $2,500 in equipment and nothing more.[17] You may need help for lost income, liability concerns, and additional issues. Ensure that any new plan you pick protects you from these home-based hazards.

Get the Coverage You Need

If you can’t get homeowners insurance because of prior claims or risk, don’t despair. With a little planning and hard work, you can ensure your investments are protected. 

You may need to switch from a standard policy to a FAIR plan or other nontraditional coverage, at least temporarily. But after making repairs and proving your trustworthiness, you could get back on track and get the help you need. 

Remember to lean on your state’s insurance department for additional help.[8]