File a claim, lose your coverage
March 10, 2003 8:41 AM   Subscribe

Isn't this what insurance is for? DC/Baltimore got pounded with snow a few weeks ago and it's caused some issues throughout the region. It seems that folks are reluctant to file claims because their home owners insurance carriers are liable to drop them. I know that life isn't fair, but isn't this why you pay for insurance?
posted by cpfeifer (20 comments total)
They aren't making money on float due to the low interest rates, so they stick it to the consumers. It's a big factor in the malpractice debate as well.

While I have a gut feeling that my insurance company wouldn't stoop to this practice, it's a good wake up call for us to review our homeowner's policies one more time.
posted by machaus at 8:48 AM on March 10, 2003

Insurance is gambling. They do everything possible to keep themselves on the upside of the equation. They are not obligated to give you coverage. And in the end, just like the casino, they will come out ahead. It's why they're in business.

I think that people who forego the $1,800 snow-damage claim for fear of losing their insurance are thinking ahead to the $200,000 claim they might have to make if their house burns down completely.

IMO, insurance is a service we should build into the government. Everyone pays in, everyone is covered. Just like universal health coverage. Remove the profit motive and just make sure the system breaks even.
posted by scarabic at 9:14 AM on March 10, 2003

The fundamental problem lies in the demutualization of insurance. Mutals are owned by the policyholders so the policyholders hold the reins and reap the benefits of any surpluses. Modern insurance companies are publicly traded companies and owe their allegiances to the shareholders and the inherent profiteering thereof. This disconnect has become a universal in every aspect of insurance from malpractice to homeowners, healthcare, and auto.

The only solution, ultimately, is collapse of the publicly traded insurance company and reestablishment of the mutual.
posted by shagoth at 9:28 AM on March 10, 2003

IANAL, but if you live in Pennsylvania, USA, it's a non-issue. Apparently PA has laws against dropping your coverage because of the number of claims you file. Or so my Met Life claims adjuster told me today, as I filed my second claim in 12 months...

Interestingly, in many states, the claims-filing blacklist can not only attach to the owners of the house, but the house itself...I could file 8 claims, sell my house, and not only would I have difficulty getting coverage on my next house, but my buyers would have difficulty getting coverage on the house I'm selling them. Odd, and stupid.
posted by luser at 9:31 AM on March 10, 2003

Insurance ain't gambling. When you gamble, you have a chance of winning.
posted by stet at 10:02 AM on March 10, 2003

Heed this advice, which echoes what scarabic said above:

"I hate to give that advice, but I advise people not to file small claims . . . to save up for a real disaster," said J. Robert Hunter, director of insurance for the Consumer Federation of America. "It's terrible advice because why do you have insurance? But because we know that they've tightened up so much, you don't want to be on the hook for a small claim."

And he added, "When you call, don't say you have a claim. Say that you're just doing some research."

posted by msacheson at 10:22 AM on March 10, 2003

Of course you are winning something: certainty! How much, it depends on your risk aversion.
posted by MzB at 10:23 AM on March 10, 2003

My personal experience: I had a water damage claim that was turned down over the phone by my insurance company. They eventually paid and immediatly dropped me. I've had two wind damage claims in the last ten years with my current insurance company, without any hassle. They aren't all the same.
posted by Mack Twain at 10:25 AM on March 10, 2003

Well, insurance ain't gambling but the goal of a homeowner isn't to max out his expected value. It's to protect against the hundred-thousand dollar loss of his home if something happens to it. That's the primary reason.

Take a step back and look at the big picture. I don't think that a homeowner really cares whether or not the insurance covers a $1500 bill for a snowstorm, so long as the whole value of the house is protected.

HOWEVER, that's not exactly the perception. People pay for insurance against everything including their $1500 bills. Homeowners would be better off getting much higher deductibles and paying lower premiums if they're not going to file small-dollar amount claims.
posted by adzuki at 10:28 AM on March 10, 2003

Well, I can see both sides of this. Yes, of course it seems cheesy that you have some bad luck and BAM not only can you not get insurance, but neither can the poor schmuck who buys your house (by the way, in this case your mortgage company usually won't let you close. Problem solved).

On the other hand, how much of our luck is made? Did the homeowner in the example (the one with the snow damaged roof) have greater damage because of things he did or didn't do? Would the damage have been less or nonexistant if he had repaired the roof last summer, or cleaned the gutter last fall, or made sure he had enough insulation in his attic (thus minimizing ice-damming)?

I will not trouble you with more examples, except to point out that many catastrophic events can be mitigated. You don't stand by the picture window watching the hurricane come in off the ocean, do you?
posted by ilsa at 11:02 AM on March 10, 2003

luser wrote: Interestingly, in many states, the claims-filing blacklist can not only attach to the owners of the house, but the house itself...I could file 8 claims, sell my house, and not only would I have difficulty getting coverage on my next house, but my buyers would have difficulty getting coverage on the house I'm selling them. Odd, and stupid.

Amen, brother! We just bought a 9-year-old home in December. Turns out, the previous owner called their homeowner's insurance company 3 times to ask questions--once about a possible water damage claim (a leak around a door)--but never actually filed a claim.

Because of their questions, our premium is twice what it would have been if they'd never called. Can you say, "Crock of shit"? I thought so.

So, if I ever need to ask a question of my insurance company, I'm using a pay phone and my Hawking voice synthesizer and certainly not giving any information that would allow them to identify me. I figure I'm just screwed if I ever need to actually file a claim.
posted by tippiedog at 11:14 AM on March 10, 2003

ilsa, what the f***, blame the victim here? There was so much snow, and subsequent rain, temperature increase, etc, in the DC Baltimore area, everyone I know got some water in their basement. Houses do that. They're not impermeable.

And yes, I think insurance should cover me when I need it. MY home was burglarized. The police did the job of investigating (ha!), and I expected my insurance to pay. They did, sort, but would only pay when I replaced the stolen items and submitted the receipts.
posted by Red58 at 11:21 AM on March 10, 2003

The issue isn't whether you should expect coverage for water damage & other relatively small matters. Of course homes are permeable. And of course a lot of problems can be prevented/mitigated. But if I was sold coverage that included water damage, I should damn well feel free to make claims -- just as the insurer should feel free to delete certain kinds of coverage from the policies they sell, if they can't afford to pay claims on the coverage.

The problem is that my policy says I'm covered, but really I'm not (if I don't want to be dropped). How's that fair?
posted by luser at 11:45 AM on March 10, 2003

Given that most lenders require insurance on the home for which the money's being lent (in theory, a reasonable request), anyone with no insurance has to pay cash up front for a home (pretty unlikely for most of us) or rent. When banks find that they can't write any more mortgages, either they'll pressure insurance companies to lower their standards, or they'll start not requiring insurance to write a mortgage, and the insurance companies will find themselves without customers.

The apparent situation people are getting stuck in at the moment is that in order to buy a house, you have to pay money for insurance you can never use. It's more like a shakedown than a service. Long-distance conversations among my relatives have noted that despite the wide variety of excuses given in different parts of the country (hail, mold, hurricanes, etc.) the results are almost exactly the same. The real reason is probably closer to "we have to cover our rear for investing in Enron".
posted by gimonca at 11:55 AM on March 10, 2003

The frustrating thing to me, is two-fold: if the insurance company wants to keep "frivolous" claims to a minimum, they should use the appropriate tool: significant discounts to folks who opt for a larger deductible; moreover, they say that they're just covering their costs... but that's what their actuarial tables are for: matching the likelihood of X happening, then charging me a reasonable amount to insure against X... its obscene that they can charge me to insure against X happening, then drop me when it does. Same problems with health insurance.

posted by silusGROK at 12:55 PM on March 10, 2003

This is speaking as an actuary-in-training (the people who come up with the rates, premiums, etc.) who is soon to work for a life insurance company.

It makes sense =in theory= to consider previous property insurance claims made on a particular house, because if the house is prone to leaking or burglary (due to location), the insurance company needs to know that risk. Insurance companies are in the biz to make money, not necessarily to do public service (even mutual insurance companies are not wholly pristine -- the individual members have their own self-interests which can be undermined by letting in people who misrepresent their riskiness.)

There are two big problems with insurance that are hard to avoid (other than out-and-out fraud): moral hazard and adverse selection. Moral hazard is when people with insurance are more cavalier with the things the insurance covers: for example, people not taking precautions to safeguard their property because it's insured, or perhaps someone taking more health risks, going to the doctor more often, asking for certain tests and specialists unecessarily simply because they have insurance coverage. As mentioned above, you can try to reduce moral hazard by increasing deductibles but then you run into the second problem.

Adverse selection is tough to avoid legally. Adverse selection is the fact that some people know they are definitely going to be needing/using the coverage, and a high deductible will not deter these high-risk people but will simply drive away the people who know they are low-risk. This is going to be particularly touchy in the genetic testing arena. I've written more about it if you care to think about the expected values, etc. of these things.
posted by meep at 2:42 PM on March 10, 2003

surance companies are in the biz to make money, not necessarily to do public service"

Actually, they are in the business of providing a public service in order to make money. The industry seems to have forgotten this. They need and deserve to be hammered mercilessly for it.
posted by Irontom at 5:39 PM on March 10, 2003

Can this problem be solved on a national level, or is this a state issue?
posted by cinematique at 10:56 AM on March 11, 2003

I believe that it needs to be handled on a national level. Otherwise, insurance companies will start abandoning states with regulations they don't like (like they did in Texas last year)
posted by Irontom at 4:06 AM on March 12, 2003

Insurance needs a fat overhaul anyway... especially car insurance. State sponsored racketeering... bla bla bla...

posted by cinematique at 11:38 PM on March 12, 2003

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