I Received a Consent to Rate Form, Now What?

Lately many homeowners across the USA have received notices from their insurance companies that include a document called a Consent to Rate form. The letter explains that due to the higher cost of insurance coverage, the insurer has experienced a rise in claims.

By the time you get that far in the notification letter you start to see the writing on the wall and know where this conversation is headed. If you’re like me you will skim past all the cordial and apologetic spin doctoring that attempts to portray the insurance company as a victim of unforeseen and unpreventable circumstances. You speed-read through the section that makes them out as neighborly and selfless, the part that argues that they sent the letter “in order to continue serving customers to the level they expect and deserve.”

Insurance Companies Blame the Weather

You jump right to the punch line – which is that the insurance company is forced to charge you much more expensive premiums. Then they hit you up with the bad news which is coupled with what could almost be interpreted as an ultimatum. Recently, the unwanted announcement is due to an epidemic of devastating weather – from floods and hurricanes to hail storms and tornadoes – and insurance companies are paying lots of claims, which cuts into their profits.

According to state law in many jurisdictions, though, insurance companies are prohibited from charging more than a certain amount unless they get explicit permission from the consumers they insure. What’s happening this year is that homeowners are receiving notifications saying that they must sign a Consent to Rate form agreeing to let their homeowner’s insurance company charge more than the law mandates.

Agreeing to Pay More than Twice the Legal Rate

How much more are we talking about, you ask? In many cases homeowners who sign a Consent to Rate form are giving their insurer the legal right to charge as much as 250% higher than the maximum allowed by the state Department of Insurance. The dilemma for homeowners is that unless they sign that consent form and return it, the insurance company can exercise their right to drop them as a customer, potentially leaving them with no insurance coverage for their home.

If you don’t have a valid homeowner’s insurance policy in place, that can lead to some major headaches. The first and most obvious problem is that if there is an accident or other incident that causes damage to your home then you are fully exposed. Instead of filing a claim with your insurer you will be liable for the whole financial impact of that calamity, even if it is so catastrophic that it leads to bankruptcy.

Mortgage Payment Increases can Still be Triggered

Even if you don’t suffer any such losses from natural disasters, however, you will be faced with another issue as long as you still have a mortgage to pay on your property. No lender will allow you to maintain a mortgage balance unless you have adequate insurance coverage, because your home is the collateral on their loan. If you lose your insurance that puts the lender at much greater risk. The way they respond – which is probably spelled out in legal language in the mortgage paperwork you signed at closing – is that they immediately buy new insurance coverage and send you the bill.

They don’t shop around for the most competitive price, either, and that kind of emergency insurance coverage is usually exponentially more expensive than an ordinary policy. You may get hit with a new premium (included in your monthly mortgage payment) that is many times more costly than your old insurance. You really have no choice, though, if you mistakenly allowed your current homeowner’s policy to lapse or if you’ve been dropped by your insurance provider.

What you Should do

If you have already received a Consent to Rate request you have to act fast. Even if you have not gotten one, you should take a proactive approach and prepare yourself for that possibility by creating a back-up strategy just in case. This is especially true if you live an area that has been hard-hit by weather-related destruction. People who live in coastal areas, for example, and those who are in a “tornado alley” should be particularly vigilant and aware that they are prime candidates for a Consent to Rate notice.

The critical thing to realize is that you do not have to agree to this kind of rate hike and you cannot be forced to sign a Consent to Rate form. You have the freedom to take your business elsewhere and there are many top-rated insurance companies that do not follow this policy of increasing customer rates beyond the state-regulated limit.

Don’t Procrastinate

Once that letter arrives you have only a limited window of time to respond or risk getting dropped. That’s why it is important for everyone to start shopping around amongst available insurance policies. You don’t have to switch insurance companies, but you definitely should compile a list of other companies that you can turn to if you need to change insurers. Be careful shopping for rates though, as you don’t want to send your credit score over the deep end.

Call around, talk to insurance brokers, crunch the numbers, and find out exactly what your options are. Insurers who don’t adhere to the policy of passing these recent claims losses along to their clients are taking advantage of this situation to attract new customers. They will welcome you with open arms and you’ll have the peace of mind of knowing there is a contingency plan in place should you need to dump your current provider and buy insurance somewhere else.

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