SD14 - Cancellations and Non-Renewals of Automobile Insurance Policies

  • Published: 1988
  • Author: State Corporation Commission and Bureau of Insurance
  • Enabling Authority: Senate Joint Resolution 142 (Regular Session, 1987)

Executive Summary:
During the 1987 Session, the General Assembly adopted Senate Joint Resolution No. 142 which requested the State Corporation Commission's Bureau of Insurance to study the cancellation and non-renewal of automobile insurance policies by insurance companies to determine whether additional state regulation was needed in this area.

Legislative Request

The resolution stated in part that (1) Virginia citizens deserve to be protected from unjustified policy cancellations and non-renewals; (2) motorists may resort to driving uninsured because of their inability to secure insurance coverage at affordable rates after being cancelled or non-renewed; (3) some motorists are forced to seek coverage with Virginia's assigned risk plan after being cancelled or non-renewed; (4) many policyholders feel that they are not being given adequate notification of their cancellation or non-renewal; and (5) automobile insurance policy cancellations and non-renewals are sources of anger and frustration for consumers who do not consider themselves as high risks.

Notice Requirements

The Bureau of Insurance began its study by surveying the insurance laws of the fifty states and the District of Columbia to determine how the requirements set forth in Virginia insurance laws compared to the requirements of other states in terms of the minimum number of days notice required to be given for the cancellation and non-renewal of private passenger automobiles. For the purpose of this report the District of Columbia is categorized as a state. Of the states surveyed, 34 require less than 45 days notice to be given for both cancellations and non-renewals. Nine states including Virginia require at least 45 days notice to be given for non-renewals. Seven states require a minimum notification of 60 days before a non-renewal can become effective and one state does not provide this type of requirement in their insurance laws.

Grounds for Cancellations and Non-Renewals

The Bureau also surveyed the insurance laws of the fifty states and the District of Columbia to compare the legal grounds permitted for cancellations and non-renewals of private passenger automobile insurance policies. Thirty-one states including Virginia do not impose any restrictions on non-renewals except those pertaining to unfair discrimination (i.e. age, sex, marital status, etc.). However, twenty states do impose other types of limitations on non-renewals such as prohibiting insurers from non-renewing policies based on not-at-fault losses; allowing policies to be non-renewed only after a specified number of at-fault or not-at-fault losses or traffic violations have occurred; and specifying the length of time an insurer may underwrite against an accident or traffic violation.

The legal grounds permitted for mid-term cancellations also vary from state to state. Of the 50 states surveyed and the District of Columbia, a total of 16 states prohibit mid-term cancellations for reasons other than (1) non-payment of premium, and (2) suspension or revocation of an insured's driver's license. Virginia is among these 16 states. Thirty-five states, however, allow insurers to cancel their policies mid-term for reasons other than non-payment of premium and suspension or revocation of an insured's driver's license. Some of these reasons include material misrepresentation, fraudulent claims, conviction of a crime, and violation of the terms of the contract.

Complaint Activity

A review was made of the number of complaints received by the Consumer Services Division of the Bureau of Insurance. According to the Property and Casualty Consumer Services Activity Reports for the three most recent fiscal years, an 85% increase in "automobile termination reviews" was noted between fiscal year 1984-85 and fiscal year 1986-87. (Automobile termination reviews are complaints reviewed by the Bureau of Insurance for consumers who feel their automobile insurance has been unjustly terminated.) During fiscal year 1986-87, 696 of the terminations reviewed were found to be in violation of the Virginia Insurance Code. Comparable figures were noted for the two previous fiscal years. In the remaining 94% of the cases reviewed, the Bureau had no authority to require the policies to be reinstated as there had been no violation of Virginia insurance law.

A review of the types of complaints received by the Bureau of Insurance was also conducted. Out of 525 randomly selected complaint files, 40 non-renewals by eleven companies were identified. While these 40 non-renewals were in compliance with existing statutes, the Bureau had concern that the reasons stated in the notices were either a subterfuge for reasons prohibited by statute or were relatively unimportant in the overall underwriting process. Some of these non-renewals were based on reasons such as one not-at-fault loss after 16 years insured; one at-fault loss after 23 years insured; one comprehensive and 2 towing claims after 17 years insured; no supporting fire business; addition of a youthful operator on the policy; and one undeclared speeding ticket 5 years old after having been insured for 2 years. Out of these 40 non-renewals, 18 policies were voluntarily reinstated by the company after the complaint had been filed. The remaining 485 complaint files represented policy terminations which the Bureau considered justified.

Activity in the Voluntary and Residual Markets

As part of this study the Bureau of Insurance also requested statistical data from the top 50 private passenger automobile insurance writers in the Commonwealth. A compilation of this information is contained in the report. According to the figures submitted, the number of non-renewals from 1984 to 1986 increased on an average of 67%. The number of policies written as new business increased on an average of 71% from 1984 to 1986. The number of policies renewed during this time period increased on an average of 10%, and the number of policies cancelled for underwriting reasons increased by 251%. These figures were representative of the companies which reported data for all three years.

The report also contains a statistical summary of the number of applications submitted to the Virginia Automobile Insurance Plan over the past nine years. Between 1984 and 1986 the number of assignments in the plan increased by 137%. However, the number of monthly assignments during the latest 12-month period beginning November, 1986 and ending October, 1987 only increased by 9% as compared to the same period for the preceding year.

Public Meetings

Two public meetings were held in Richmond and Roanoke to give the citizens of Virginia an opportunity to testify regarding the cancellation or non-renewal of their automobile insurance policies. These meetings were held to determine the types of problems consumers were having with what they considered to be unjustified terminations so as to determine whether additional state regulation was needed. Several suggestions were offered at these meetings such as (1) allowing policies to contain a named driver exclusion; (2) giving the Commission the authority to substitute its judgment as to underwriting for that of the insurer; (3) using arbitration to settle matters dealing with unfair cancellations and non-renewals; (4) prohibiting a company's application from including a question as to whether the insured has ever been cancelled or non-renewed; and (5) changing the definition of "renewal" in the Code so that a company can modify coverage on the policy at the time of renewal in lieu of non-renewing the entire policy. Recorded testimony for, each of these meetings is available from the Bureau of Insurance. Also available from the Bureau of Insurance is a 1982 report on the named driver exclusion. This study was conducted pursuant to House Joint Resolution No. 322 of the 1981 Session of the General Assembly. An update of this study was done in 1985. The results of the study are summarized in this report.

Recommendations

Based on the findings contained in this report, the State Corporation Commission concluded that several changes in the insurance code are needed. The recommendations of the State Corporation Commission are as follows:

(1) Add a provision in the insurance code which prohibits an insurance company from refusing to renew a private passenger motor vehicle insurance policy solely on the basis of the lack of supporting business (i.e. homeowners insurance or personal umbrella insurance) or on the basis of the lack of the ,potential for acquiring- such supporting business;

(2) Amend subsection C of S38.2-2212 to include the language "solely because of anyone or more of the following factors" to be consistent with the language found in S38.2-2213 pertaining to unfair discrimination;

(3) Prohibit an insurer from refusing to renew a private passenger motor vehicle insurance policy solely on the basis of the inexperience or the number of years driving experience of anyone who is insured. This would not prevent a company from underwriting new business on the basis of the inexperience or number of years driving experience of the person insured;

(4) Prohibit an insurer from refusing to renew the liability coverage of a private passenger motor vehicle insurance policy on the basis of one or more claims submitted under the comprehensive or towing coverages of the policy. This would not prevent an insurer from non-renewing the comprehensive or towing coverages under the policy or from changing the deductible on the basis of comprehensive or towing claims submitted;

(5) Prohibit an application for private passenger automobile insurance from including a question as to whether the insured has ever been cancelled or non-renewed unless the application also requires a full explanation of the reason for the cancellation or non-renewal;

(6) Prohibit an insurer from non-renewing a private passenger motor vehicle insurance policy solely on the basis of an accident or violation which occurred more than forty-eight months immediately preceding the upcoming anniversary date;

(7) Prohibit an insurer from non-renewing a private passenger motor vehicle insurance policy solely because of claims submitted under the uninsured motorists coverage of the policy;

(8) Prohibit an insurer from non-renewing a private passenger motor vehicle insurance policy solely on the basis of a single claim submitted under the medical payments or medical expense coverage of the policy due to an accident for which the insured was neither wholly nor partially at fault;

(9) Require insurers to specify in the notice of cancellation or non-renewal that the insured's right to a review by the Commissioner entitles the insured to a review of the technical and legal accuracy of the cancellation or non-renewal, but does not give the Commissioner the authority to substitute his judgment as to underwriting for that of the insurer.

The report contains language which has been drafted to incorporate these changes into Title 38.2 of the Code of Virginia.