Why Insurance Companies Cover (or Don’t) What they Do

homeowners insuranceInsurance coverage for your home or business seems like a pretty straightforward thing. Complicated, sure, but with certain logic, right? Yes and no. Insurers' coverage decisions can be perfectly rational or frustratingly subjective. The good news? We have some knowledge and tips that will help you make sense of it.

Insurers won't cover most regional disasters

Widespread disasters such as flooding and earthquakes are usually excluded. This practice dates back to 1906, when the San Francisco earthquake wiped out scores of insurance companies. One insurer from here in the Northern Illinois/Southern Wisconsin area had collected $53,000 in premiums from San Francisco customers. They were liable for $5,000,000 in claims—more than the company was worth—and closed down. Some catastrophes are simply beyond the resources of even the biggest insurance group. Disasters were once commonly referred to in a catch-all “Acts of God” clause, but today most policies detail exactly what is and isn't covered. It's worth examining your policy to know exactly what's there. You may find it covers damage from volcanic eruption, but not a burst pipe!

They won't cover buildings with certain features

If your building has any of the following problems, you may be denied coverage, for the simple reason that claims are far more likely and/or will be extremely expensive:
  • A roof that's very old or has been involved in a leakage claim recently without being replaced
  • Certain types of electrical setups, including those with fuse boxes. This is especially true for business policies.
  • Multiple claims for water damage
  • Several claims over 2-3 years
  • Homes occupied by more than one family
  • Homes with wood burning stoves or wood pellet furnaces
  • Homes with certain types of recreational equipment—trampolines, an unfenced pool, etc.
Certain breeds of dogs may prevent you from obtaining coverage. You may also have trouble if you have a bad credit rating or other problems on your credit report.

They have a CLUE, you can too

When granting or denying coverage (and setting your rate) insurers use a CLUE or Comprehensive Loss Underwriting Exchange Report. This report gives a history of all the insurance claims on a property in a five year period. Like a credit report, false information on the CLUE can be very damaging; unlike a credit report, the CLUE can include problems caused by others, such as multiple claims from a past owner. It may even include times when you alerted the insurance company to damage but didn't file a claim. CLUE reports are available to anyone who has a financial interest in the property, so you can order yours free from LexisNexis. You may be able to get inaccurate or irrelevant entries removed from the report. If they deny coverage, you have options Besides looking at your CLUE and credit reports to see if those were the source of your problem, these actions may help
  • Check if the company has an appeals process and use it.
  • If you're buying a new home or business site, approach the company that insured the previous owner. They should be willing to insure you.
  • Check with your lender or real estate agent. They may be able to go to bat for you or represent a company that's more tolerant of your particular situation.
  • Use an independent insurance agent. They'll be knowledgeable about many different companies and how those companies view specific risks.
  • Complain to your state's Department of Insurance if you feel you've been treated unfairly. In many states you can file the complaint online.
No matter what, make sure you have the protection of a reasonable and stable insurer. In our next post, we'll look at why rates go up and how you can keep them low. Download your free home disaster planning eBook  


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