The timing of some nonrenewal notices - 10 days for workers' compensation insurance, - is set by law. For most commercial policies, however, usually the only way to know what is true is for the insured to review the current policy and see what it says. Either way, the insurer knows that if it does not issue a notice of nonrenewal on time, the insurer must renew a policy. The notice means that the insurer is making clear that you cannot count on having the coverage renewed by your insurer when the policy expires.

Note: It is not uncommon for nonrenewal notices to be sent to the agent or broker of record rather than to the policyholder/insured. If you've changed brokers recently, you might want to check with the former broker. Even if you have not made a change, calling your agent/broker to make sure that no notices have been received, especially on the policies that are most important to you, is prudent.

Background

Many insurers purchase "reinsurance" to help them pay claims should the number and size of the claims they must pay be more than they can afford. Reinsurance can be thought of as insurance for insurance companies. Large, financially strong insurers usually don't need to purchase as much reinsurance as their competitors, but virtually all insurers buy some. Reinsurance helps protect you as a policyholder, as it increases the likelihood that your insurer will be able to pay its claims.

Reinsurance contracts typically renew every 12 months. Reinsurers are generally obligated to give notice to the insurers (their "policyholders") before they nonrenew a reinsurance policy. The effect that this may have on you, as a policyholder, is that if your insurance company's reinsurer has issued a notice of nonrenewal to your insurer, your insurer might not renew your policy. Without reinsurance, an insurer would have to weigh not selling coverage at all or selling it to far fewer people, because it cannot do so unless it believes that it can keep the promise it sells with the policy: to pay your claims.

Reinsurers recently testified before members of the United States Congress that many of them are not willing to promise to renew the policies they sold insurers this year. There are reports of projected price increases, as well as exclusions for "terrorism" for policies that are renewed. Insurers customarily have their reinsurance in place at least 60-90 days prior to current contract expiration, however right now 30 days is not uncommon. In the meantime, you know that you need insurance for yourself, and you have a nonrenewal notice in hand.

Suggestions for Commercial Customers

1. Ask if the nonrenewal notice you received is a function of the current reinsurance market.

If it is, your current insurer might still issue you a renewal policy, although it may have a terrorism exclusion (if not prohibited by law); cost more; and may have higher deductibles, co-insurance requirements, or less coverage.

If you are told it is not, you should begin immediately to find a new insurer. In either case, be sure you ask your agent or broker to start looking for alternative coverage. If you purchase directly, start looking yourself.

2. For some commercial property, the FAIR Plan (Massachusetts Property Insurance Underwriting Association) is a state-created alternative that might be able to provide some (limited) coverage. You can access it through an agent or broker, or directly at (617) 723-3800. While The FAIR Plan isn't required to insure everyone, if your risk is insurable or can be made insurable, you may be able to purchase coverage that will at least satisfy the requirements of a commercial lines loan or mortgage. But, for large risks, it probably won't be useful.

3. For commercial automobile insurance, there is a residual market for Massachusetts vehicles. Your agent/broker can help you access this market that is a part of Commonwealth Automobile Reinsurers (CAR).

4. For workers' compensation insurance, there is an assigned risk pool. Most "credit plans" (such as deviations, scheduled rating, discounts, guaranteed cost plans) are not available for policies issued through the pool and you cannot pick your servicing carrier, but it is there for emergencies.

Note: Both the FAIR Plan and the W/C Pool allow commercial customers to cancel their policies mid-term and pay pro-rata. (No "short rate" penalties.)

5. If you have an excess liability policy, remember that these insurers usually require "underlying coverage" (e.g. auto, general liability) with certain minimum limits and from insurers with certain financial strength as determined by rating organizations. If you need to find a new insurer, be sure to inquire about the insurer's requirements for underlying coverage.

6. The same is true for Directors' and Officers' coverage. The insurer generally can decide if it finds the coverage you have acceptable.

7. If you are satisfied with your current insurer, you may want to delay finalizing a change "until the last minute". BE CAREFUL TO NOT DELAY TOO LONG. If your current insurer has indicated that the nonrenewal is based on its reinsurance situation, and has indicated that they would like to renew you, you may wish to postpone changing "instantly." Nevertheless, be sure you understand where your insurer stands on this and don't wait too long. Any quotes you receive may have an expiration date, meaning you must agree to buy the new coverage by a certain date or the insurer has the right to not sell to you.

8. If you are told that your nonrenewal notice is due to your claims history, risk profile, or any other underwriting criteria, you may ask for reconsideration. Perhaps your insurer is not aware of changes or improvements that have been made and the new information might make a difference. In any case, be sure that any prospective insurers are made aware of any positive changes you have made or are making. Doing so may very well make the difference as to whether or not you will find coverage.

9. Look outside of the "usual". For example, are you part of any association or industry that will give you access to a risk purchasing group and/or a risk retention group?

10. Reconsider your insurance needs. What requirements are imposed on you by contracts or loans that might be changed? Also, for many commercial insureds for the past decade or so, obtaining insurance has not been a problem---either finding it, or paying for it. Look at what you are buying. Can you raise your deductibles? Do you have any "bells and whistles" coverages that you can do without? Do you have some property that you really wouldn't replace if it burned down against which you have no loans? Do you need to insure it? Can you live with lower liability limits? Do you need to indemnify everyone currently "additional insured/additional named insured" on your policy? Can you transfer some risks other than through an insurance mechanism?

11. Consider hiring an insurance advisor licensed by the Division of Insurance to help you sort out your options. It is usual to pay them a fee, and you should not expect to have them place any coverage you decide to buy and receive a commission from the insurer as your agent/broker. Be sure that you ask about their ability to respond to any claim you might have against them for any errors or omissions.

12. Don't be afraid of rejection! Have your risk be "shopped around". In effect you need to "sell" your risk to an insurer and for any of them to "buy" it, they need to know it's available.