Every Insurance Customer Should Know This Detail Before They Apply
Selling insurance day-in and day-out, you are aware of the underwriting period and how any policy may be canceled within a certain window. More than a few insurance customers, however, don’t understand this detail, and that can set up a clash when an “accepted” policy ends up being canceled shortly thereafter. That’s why it is important to emphasize the process to your customers before they apply.
According to a new report from the Insurance Journal, every state that extends a new policy is subject to an underwriting period, and “the applicability, limitations, notification requirements and allowed length of the … review vary greatly.”
The site notes that 44 states and the District of Columbia “extend a specified underwriting period to all property and casualty (P&C) lines of coverage and policies” with the final six states limiting the underwriting period’s applicability “to only certain types of coverage or policies, which include four that limit only to auto policies, one to both homeowners and auto policies, and one to “only auto, homeowners and medical malpractice policies.”
“In states where applicability of the underwriting period is limited to certain lines, the mid-term cancellation statutes are very permissive compared to states that allow the underwriting period to apply to all P&C coverages,” notes Insurance Journal writer Christopher J. Boggs. “To illustrate the point, in states where the underwriting period extends to all P&C lines, a mid-term cancellation beyond the specified underwriting period is allowed only if certain conditions are met (such as a material change in risk or material misrepresentation).”
Boggs continues: “Conversely, in states where applicability of the underwriting period is limited to the auto and/or homeowners lines, mid-term cancellations are allowed without major limitations placed on the insurance carrier.”
Valid Underwriting Reasons
These states typically require only a valid underwriting reason to cancel a policy mid-term with no list of acceptable reasons, “just the requirement that the insurer’s desire to cancel the policy relates to the carrier’s underwriting guidelines and acceptability of the insured.”
To clarify “valid underwriting reason,” this generally means that an underwriter “can use any reason that would have kept him or her from writing the risk initially,” such as discovering the “true extent of the loss history” after coverage is in effect.
That’s why it is very important to have such communication with your clients before moving forward. As an agent, you’re not always going to be in the position of squeezing the truth out of the applicant. There has to be a certain element of trust in order to proceed with a policy.
Applicants sometimes have the idea that as long as their policy is accepted, they can “get away with” certain lies or omissions and try to “fool” you. But with more and more of our lives being tracked and made available online, these behaviors are getting more difficult to mask.
Advising clients and leads upfront regarding the possibility of cancellation and where they can learn more about what the in-state guidelines are, encourages honesty whenever the validity of a policy depends on it.