What is the “Renewal Rule”?
As I approach the half century mark this summer, I have gained my “second wind” in the insurance business. I have a renewed interest in education and continuing to learn more about the business I chose for my career. So much of this is my choice of attitude. You can choose to let all the change in the business “get over on you” or you can zoom forward and make it a life long learning experience. I chose the latter.
So when I hear a new term or new acronym in this business I immediately dive in and find out more about it. At times it is a fine line between showing my ignorance and swallowing my pride in order to quenching my thirst for knowledge. I truly believe in the statement that you are growing or you are dying. This relates directly to my need for additional knowledge and expertise in the detail oriented business of insurance.
So when I heard the term, “renewal rule” recently, I said, what is that? Surely after 25 years in this business I had heard everything. I guess not. So I did some internet searches and here is what I found out:
Renewal Rule – When an insurer issues a renewal policy to its insured, it has an obligation to put the insured on notice of any changes that reduce coverage when compared to the outgoing policy. If the insurer fails to meet its obligations under this so-called “renewal rule” the insured may be entitled to coverage that otherwise would not be available.
In most circumstances, a party cannot escape its contractual obligations by pleading ignorance; failure to read a contract before signing it does not relieve the signer of his or her obligations. For the most part, this is true with insurance policies as with other contracts. Thus an insured is obligated to read his or her insurance policy and raise questions concerning coverage within a reasonable time after issuance. An insured who fails to do so is bound by the policies terms, just as if he or she had read them.
But courts recognize an exception to this rule in the context of renewal policies. When an insured renews coverage from one policy year to the next, he or she is entitled to assume that the renewal policy contains the same terms and conditions as the expiring policy and is relieved of the obligation to read it. If the insured makes a change to the renewal policy that reduces the insured’s coverage, the insurer must provide notice of the change. If it fails to do so, courts hold that the change is unenforceable and that the insured is entitled to the benefit of the more favorable coverage found in the earlier policy.
While this “rule” doesn’t surprise me I was surprised to find that in at least one state (Michigan) that this was law and generally accepted practice. As an agent, I do see this as the responsibility of the insurance carrier and that my duty was to make sure that they held up to their responsibility.
The unknown going forward is what is my responsibility to the insured when my agency chooses (for one reason or another) to move an insured from one carrier to another one in my agency. Do I need to explain all of the coverage changes (mainly reductions in coverage) to the client or are they assuming I am moving the coverage to a carrier with equal or broader coverage? This is where I think we fall down in dealing with our customers. I think we assume that they will most likely be interested in us moving coverage to the carrier that offers the lowest price and will not be interested in hearing about the “minute” coverage reductions that ensue. This only becomes an issue when there is a loss that is not covered and would be have been covered by the old policy. Everything is “give and take” but needs to be an informed “give and take”
So what to do:
1. Read the notices the carriers send when there are form changes. Be able to understand them and answer questions from your clients.
2.Stay abreast of ISO form changes. ISO does a good job of putting together supporting material to explain the differences in the updated forms.
3. While the “renewal rule” may not apply (yet) when you move coverage from one carrier to another, act like it does. The better informed you can keep your clients the better off you will be in the long run.
4. Also, while the “renewal rule” may not be the legal precedent in your state, act like it is. A sharp attorney will try and use it when a loss that would have been covered in a prior policy was now excluded. If nothing else you will lose a client over the uncovered loss and it could easily lead to a public relations nightmare.
5. Change you attitude. Choose to “get on the learning bus” and never get off of it. Go to continuing education classes that will expand your knowledge and not just to ones that will fulfill your CE requirements. When you stumble upon and area you don’t know anything about, decide that you will make it into a learning opportunity.
6. Ask more questions. This is the single most important way to learn more. Start to worry when you have stopped asking questions.
If you are reading this blog post, you are already on your way to learning more. Keep it up.