A nonrenewal is a decision made by an insurer to not renew an existing policy once it expires. nonrenewals happen due to various reasons, such as changes in underwriting guidelines, a high frequency of claims, or a shift in the company's risk appetite. Receiving a nonrenewal notice for your rental property insurance can be unsettling, but it's important to remain proactive and explore alternative options.
Why did I receive a nonrenewal letter for my property?
Insurance companies thrive on ongoing business and loyal customers, so a nonrenewal will not be issued without considerable cause. The specific reason why the insurer opted to not renew the policy for your property will always be stated in the notification letter, so before you take any action, make sure you understand what your circumstances are. The most common reasons for a nonrenewal are:
Area considerations
If the property is deemed to now be in a high-risk location (e.g., prone to natural disasters or reduced access to infrastructure), or if the insurer experiences a large increase in losses in a specific area, this will likely impact the number of new business and renewals in that specific area. There have even been cases where large insurance companies have stopped doing business in certain states that are very prone to natural disasters, typically California or Florida, in order to minimize their financial risk.
Your personal history
If you have a history of filing multiple and/or high-value claims, the insurance company may view this as too high-risk and decide not to renew the policy. If there have been fraudulent activities related to the policy or misrepresented information during the application process, this will probably lead to a nonrenewal as well. Additionally, if the insured consistently fails to pay their insurance premiums on time, this could be another reason for the insurer not to renew.
Dwelling risk profile
If the insurer detects a lack of maintenance on or near the property, such as a failure to repair cracks, overgrown trees, etc, this could increase the loss risk, and in severe cases, the insurer could opt not to renew as a result. This is why it’s so important to conduct regular inspections and have a maintenance schedule.
While major property renovations usually have a positive impact on your risk assessment, if the renovations or additions negatively affect the property's value or safety features, the insurance company may decide not to renew the policy. For example, if you replace your roof but opt for wood shingles instead of metal, this may be considered a major fire loss exposure by some insurers. Additionally, if you have major renovations planned, you’ll need to switch to a builder’s risk policy until the work is completed.
Underwriting criteria changes
Insurance companies frequently review their underwriting criteria and may decide not to renew policies that no longer meet their updated standards. This could be due to changes in the insurer's risk appetite, market conditions, or regulatory requirements.
What can I do if my insurer has decided not to renew my policy?
If you receive a notice of nonrenewal, make sure you fully understand why this happened. Understanding the rationale behind their decision can help you determine your next course of action. The nonrenewal letter will outline the main reasoning behind the insurer's decision, but you can also follow up with them to get additional information.
Try other insurance companies!
Underwriting guidelines and loss-ratio considerations will vary from insurer to insurer. Before you do anything else, it’s always good to shop around and see what other insurance carriers have to offer. You may find that your property is eligible for insurance with a carrier that has a different approach to risk assessment.
For example, let’s say you have a well-maintained property that was built 20 years ago. Some insurers may have underwriting guidelines that put a cap on properties that are more than 20 years old, meaning you will receive a nonrenewal as soon as your property reaches this limit. Other insurers may not have any age restrictions at all but rather look at the overall condition of the property.
Make the necessary improvements
If the nonrenewal was issued due to concerns with the lack of maintenance or the condition of the property, you may be able to take action that would make the insurer reconsider their stance. Before investing in any costly repairs, make sure to check with your insurer that this course of action is something that will make them reconsider your eligibility, and note that it’s not guaranteed that anything will change as a result when it comes to your eligibility for obtaining the right insurance coverage. That being said, a property in good condition has many advantages just besides insurance coverage.
Last-resorts options
If you are unable to obtain insurance from private insurance companies, you can check with your state to see if they offer any insurance programs. For example, if you live in a high-risk wildfire area in California, you may have options available through the California FAIR Plan. The California FAIR Plan (Fair Access to Insurance Requirements) is a state-mandated program designed to provide basic property insurance coverage to individuals who are unable to obtain it through the voluntary insurance market. The coverage provided by the Fair Plan is typically more basic and may not include certain types of coverage that are commonly offered by traditional insurance companies. Additionally, the premiums for Fair Plan coverage can be higher compared to regular insurance providers.
If you have a mortgage on the property and you’re not able to get insurance from a private insurer, the mortgage contract will most likely give the lender the right to place the coverage without getting the borrower’s authorization. These force-placed insurance policies are typically more expensive and usually provide coverage only for the lender's interest in the property. It may not offer the same level of protection or coverage for the borrower as a standard landlord insurance policy.
Bottom line
If you receive a nonrenewal notice from your insurer, it is crucial to take immediate action to protect your interests and ensure continued coverage. Begin by reviewing the nonrenewal notice and understanding the reasons behind it. Explore alternative insurance options, other insurers may have different underwriting guidelines and your property might be eligible with a different insurer. Consider improving your property's risk profile by implementing safety measures and addressing any issues highlighted in the nonrenewal notice. By proactively addressing the situation, you can secure the necessary coverage to safeguard your property and financial well-being.
