State Rankings: Laws About Home Insurance Increases

Homeowners Insurance, Insurance
Home Insurance Claims and Rate Increases

Given the premiums you pay for home insurance, you’d hope you could make a claim without having to brace for a rate increase. But that’s not the case in many states, according to a study by the Rutgers Center for Risk and Responsibility.

Researchers evaluated states on how well they protect customers from rate hikes or policy nonrenewals after home insurance claims, a practice known as “use it and lose it.”

Findings at a glance

  • Only Rhode Island and Texas received five stars, the highest score. In these states, policyholders won’t face improper price increases or nonrenewals after making a single claim, according to the Rutgers report. And they won’t be unduly penalized for inquiring about filing a claim or making a claim that paid nothing — actions that can lead to higher rates in other states.
  • Seven states and the District of Columbia received a rating of either four or four-and-a-half stars
  • 21 states received a one-star rating
  • 18 states have don’t have laws that combat “use it and lose it” practices, the report says

The five-star standard for home insurers

The state rankings are part of a project that proposes standards for insurers called Essential Protections for Policyholders. It was created by Rutgers with help from consumer advocacy group United Policyholders.

For instance, researchers suggest insurers should be prevented from not renewing policies or increasing rates for home insurance customers who:

  • File only one claim in a three-year span
  • Make a claim that doesn’t result in settlement money
  • Inquire about making a claim, but don’t actually do it
  • File a single claim due to weather-related damage or a natural disaster even if they’ve recently filed other types of claims

Using these standards as their high-water mark, researchers ranked every state’s home insurance laws.

Best and worst states for home insurance regulation

Nine states and the District of Columbia received a rating of four stars or better.

Best states for laws against “USe It and Lose It”

Five stars
Four-and-a-half stars
Four stars
Three-and-a-half stars
Source: Rutgers Center for Risk and Responsibility
  • Rhode Island
  • Texas
  • Oklahoma
  • Washington, D.C.

  • Delaware
  • Louisiana
  • Maryland
  • Minnesota
  • Montana
  • Pennsylvania
  • Georgia
  • Michigan
  • South Carolina

THE REST OF THE LIST

Three stars
Two-and-a-half stars
Two stars
One star
Source: Rutgers Center for Risk and Responsibility
  • Alabama
  • Arkansas
  • Connecticut
  • Florida
  • New Jersey
  • North Dakota
  • Wyoming
  • Utah
  • Arizona
  • California
  • Colorado
  • Iowa
  • Kentucky
  • New Hampshire
  • North Carolina
  • Tennessee
  • Vermont
  • Alaska
  • Hawaii
  • Idaho
  • Illinois
  • Indiana
  • Kansas
  • Maine
  • Massachusetts
  • Mississippi
  • Missouri
  • Nebraska
  • Nevada
  • New Mexico
  • New York
  • Ohio
  • Oregon
  • South Dakota
  • Virginia
  • Washington
  • West Virginia
  • Wisconsin

Those living in lower-rated states could face:

  • A home insurance rate increase because they asked a question about coverage
  • Rate increases after claims even if the insurer paid nothing
  • Nonrenewal of a policy or a rate increase after filing a single claim
  • Nonrenewal of a policy or a rate increase after claims related to a natural disaster

Claim frequency on the decline

Insurance companies track customer claims in a shared database called CLUE, or the Comprehensive Loss Underwriting Exchange. That means other insurers will see your past claims if you decide to shop for a new company — and you could face higher rates. Given that prospect, many policyholders may decide making a claim is simply not worth it, even if the damage would be covered by their policies, Rutgers says.

The overall frequency of home insurance claims dipped by about 40% between 2010 and 2015, based partly on fewer wind and fire claims, according to the 2016 LexisNexis Home Trends Report. This has contributed to a 30% reduction in the amount insurers spent on paying claims in the same span.

Essential Protections for Policyholders outlines a standard of treatment among insurers that could encourage customer trust. It remains to be seen whether states heed that advice.

Alex Glenn is a staff writer for NerdWallet, a consumer finance website. Email: aglenn@nerdwallet.com.