Home Insurance: Three Strikes and You Are Out

by bigcajunman last updated on January 13, 2019

I had a great time at CPFC15, where a bunch of Personal Finance folk got together to discuss things and two of the speakers touched on points on Home Insurance that resonated with me:

Rob Carrick from the Globe stated that the Insurance Industry needs to be put under higher scrutiny for some of their practices.
Ellen Roseman spoke about folks that have had their home insurance cancelled (for many reasons)

With these two points in mind I will share with you an upsetting story that happened to my mother, with her home insurance.

My parents have lived at the same address for more than 50 years, and they dutifully paid their home insurance premiums. There were a few small incidents in the house, but never any major claims until about 7 years ago. The water tank in the basement gave up the ghost in a spectacular way, and flooded the basement causing damage to the finished basement (dry wall, carpeting and clean up), so my parents made a claim due to this incident.

A week after the “new” tank was put in, it ruptured. My Mother called the insurance company about that incident, and it was cleaned up.

The last straw (for the insurance companies) happened on my birthday about 2 years ago, when the oil tank in the basement leaked. It was a significant spill, which caused a large claim to clean it up.

Thanks to this, the next year the Home Insurance on my mother’s house came up, she was told she was “uninsurable” due to these 3 incidents. Uninsurable by any main stream insurance company, as we found out after calling a few. This is someone who had paid their insurance rates, and had been a model customer, but thanks to these 3 incidents (which in my opinion is really only 2 incidents, as the second water tank giving way was a function of the first tank failure, but we were told that is not the case in the insurance industry), she was going to have to use “off market” home insurers.

Can I Get Insurance ?

In this world you can insure anything, and you can find folks who will insure anything, however, they do not do it for cheap. For the next 4 more years (at least) my Mother must use these “alternate insurers” to insure her home.

I tell this as a cautionary tale, be aware that your Home Insurance can be cancelled for many reasons and the “Three Strikes” rule is one of the ways this can happen.

Image courtesy of fantasista at FreeDigitalPhotos.net

originally published on October 19, 2015 { 4 comments }

Mickey November 9, 2015, 2:19 PM

Insurance companies don’t lose money. The rules and loopholes they put in place guarantee it. Governments need to step-up and put a stop to insurance company deception.

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LifeInsuranceCanada.com October 22, 2015, 12:02 PM

Not that I’m an expert on home insurance, but companies don’t work based on consumers opinion or rationalization. They work on statistics – and statistics that have low probability but high severity. i.e. it probably won’t happen (low probability) but if it does, it’s going to cost a bundle (high severity).

And one good predictor of claims is prior claims experience. People with no claims are unlikely to claim. People with 2 or 3 claims have a much higher probability of claiming again – to the point where companies can’t recoup their costs. And we can’t expect companies to insure people when they company has an expected loss, right?

People who have a flood in their basement are more likely to have another flood. Maybe not everyone – but just a few more can make the entire group uninsurable. Your mother is a good example – she had one water heater claim and sure enough – that resulted in a second claim. Calling it one claim or two is semantics only – you can see clearly that one claim has potentially led to more with a higher probability than if she had no claims to start with.

So it’s not like insurance companies are being ruthless here. They’re assessing risk and probability quite properly, even if consumers don’t have a solid grip on the numbers.

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- bigcajunman October 22, 2015, 1:19 PM
  
  I think some of us have a grip on numbers 🙂 , but the time frames looked at are interesting. Only 5 years? A long time customer that has had no claims hits a rough patch, and they are cut off? Little to do with numbers, lots to do with incredibly callous Customer Empathy. If we are working on strict risk analysis the fact that she had not claimed would mean there is a higher probability she would claim (as the house and it’s parts age), wouldn’t it?
  
  If we were arguing about living on a flood plain (sp?) that might be a better argument, but one exploding water heater begets another one?
  
  I think simply dismissing this as someone who doesn’t understand risks or numbers is unfair, but I am sure I don’t have a strong grip on it.
  
  Reply
bigcajunman October 19, 2015, 10:09 AM

@ellenroseman @bigcajunman BEFORE making a claim decide is it worth it. Sometimes paying for it yourself is the better way to go.

— Punch McKully (@kayaking_canada) October 19, 2015

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