January 21, 2003

Can an insurance company cancel your policy? Can an insurance company not offer you coverage? Due to new state laws that go into effect on April 1, 2003, the answers to those questions are going to change. An insurance company will be able to cancel a policy or deny coverage based on convictions, minimum value of homes and physical condition of homes.

“Right now, the only way that an insurance company can deny coverage is if you have been convicted of serious arson or fraud within the last five years or have too many points on your driver’s license,” said Michigan Office of Financial and Insurance Services (OFIS) Commissioner Frank M. Fitzgerald. “It is important to remember that no Michigan citizen has to go without insurance, even with the upcoming changes. If you cannot get insurance from an insurance company, insurance agents can assist you in getting coverage through an organization set up by state law.”

These changes in state law were a result of changing market conditions and are intended to give insurance companies improved ability to control losses. Insurers believe that controlling losses can have a direct impact on the future need for rate increases.

The changes, passed by the legislature last fall, that will go into effect on April 1 include:

• Removing the dollar amounts associated with arson and fraud convictions. This change allows cancellation or denial if any arson or fraud conviction occurs and is not tied to the amount of damage or harm.
• Raising the minimum value of homes qualified for insurance coverage. If a home is not valued at $15,000 for a repair cost policy and $35,000 for a replacement cost policy, an insurance company can cancel or deny coverage.
• Allowing insurance companies to deny home insurance coverage if the physical condition of the home clearly presents an extreme likelihood of a significant loss under a home insurance policy.
• Allowing insurance companies to deny the renewal of home insurance coverage for a loss if the insured fails to correct a physical condition on his or her property that presents a risk of repeated loss. The insurance company must notify the insured of the risk of repeated loss in writing. This change applies to property and liability coverage.
• Allowing insurance companies to refuse coverage for home or auto insurance if the applicant has threatened, harassed or physically assaulted a company employee, agent, or agent employee. The incident must have been reported to an appropriate law enforcement agency. The current law says the agent or employee cannot refuse to deal with a person who has threatened them during an insurance transaction.
• Allowing insurance companies to require a home inspection based on the age of the home or the amount of home insurance coverage purchased for renewal policies.
• Expanding the home insurance options available under the Michigan Basic Property Insurance Association (MBPIA). MBPIA provides an insurance pool for anyone who does not qualify for insurance in the regular home insurance market. The expansion of this option should relieve concern for consumers who may lose their regular coverage due to changes in the laws described above.

Further, these changes do not automatically go into effect for all Michigan insurance policies. An insurance company has the option to use these practices after filing appropriate regulatory notice with OFIS.

Michigan insurance law currently contains a “three-strikes” rule. This rule allows an insurance company to cancel coverage if, in the immediately preceding 3-year period, there have been three paid claims. On April 1, 2003, the total limit of claims is being raised from $1,500 to $3,000. This excludes weather-related claims. The total claims limit, including weather-related claims, is being raised from $2,000 to $4,000. It is important to note that this rule does not allow insurance companies to deny coverage based on past claims.

As part of Get Smart About Insurance Week (January 20 – 24, 2003), OFIS is reminding Michigan consumers that additional information about insurance is available on the Web (www.michigan.gov/ofis) or by calling toll free (877-999-6442). This information includes searchable databases for insurance companies and agents as well as directions for filing a complaint with OFIS if you feel you have received an incorrect denial or cancellation. Specific home and renters’ insurance information that details what consumers should expect from insurance companies and agents is available at http://www.michigan.gov/cis/0,1607,7-154-10555_12902_21202-52521--,00.html

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The Michigan Office of Financial and Insurance Services (OFIS) is responsible for the regulation of Blue Cross Blue Shield, 29 HMOs, 138 banks, 280 credit unions, almost 1,500 insurance companies, 1,583 investment advisers, 2,164 securities broker-dealers, 6,000 consumer finance lenders, 89,000 insurance agents, and 120,715 securities agents. OFIS is part of the Department of Consumer and Industry Services and is primarily fee-funded, requiring minimal public tax dollars for its regulatory and consumer assistance activities. OFIS has insurance, financial institutions and securities information available online at the OFIS web site, www.michigan.gov/ofis, or at the Michigan government home page, www.michigan.gov. All information is also available through the OFIS toll free number, (877) 999-6442. If you would like to receive OFIS press releases electronically, please email ppdavis@michigan.gov.