Lapses in property insurance coverage are like the common cold. They happen frequently enough that we treat them like innocuous, routine occurrences. Properties are purchased in cash and the buyer isn’t required to have insurance immediately; payments get missed; insureds go out of town on vacation or business and policies cancel for non-payment of premium. No big deal, right? Like a dose of Robitussin, we obtain a no loss statement to band-aid the problem and move on.

While commonplace, lapses in coverage raise serious underwriting questions:

  • How long is the lapse? If a lender instituted force-placed coverage, this does not qualify as having prior insurance for the client (they have no coverage for their contents or liability under this coverage).
  • Why did the policy lapse? If it was for non-payment, why didn’t they pay the premium? Most reasonable homeowners keep up with their bills. A lapse can be an indication of financial distress.
  • If the client states they never got the notice, ask how the home is occupied.   Is it rated correctly? If they aren’t at the property at least every 30 days to get their mail, who is checking on the home’s plumbing, HVAC, and security?
  • Has this happened before? This might uncover a material fact about being canceled or non-renewed by a prior carrier for non-payment of premium.
  • Who was the prior carrier? Can the insured provide their notice of cancellation that describes the cancellation reason?
  • How well do you know the client? Is this something that might happen again?
  • Have they experienced a loss and are now seeking insurance coverage to pay for it? This is a critical question as we approach hurricane season. Clients who intentionally allow policies to lapse for financial reasons, and then only seek coverage in an adverse selection situation, are not an ideal risk for Tower Hill.

New Business: Agencies can bind a risk with up to a 30-day lapse in coverage without prior Underwriting approval as long as the required no loss statement is uploaded to RPM prior to binding (the policy is ineligible for binding without it). Vet the situation using the above questions (if you don’t ask, your underwriter will when they review the application). If any “red flags” arise, it may not be a good fit for Tower Hill. Any risk without prior insurance or with a lapse of coverage over 30 days must receive Underwriting approval prior to binding.

Existing business: If a client has missed their payment, contact Agency Services immediately (800-509-1592, option 4). Depending on factors like those noted above, we may or may not reinstate the policy.

An ounce of prevention also helps. Clients can sign up for automatic payments, pay the policy in full, or choose to escrow their insurance payments through their lender. Tower Hill also provides agents a Policy Pre-Renewal Listing in RPM to identify policies coming up for their renewal payment to make sure the payment arrives on time.

Brian Hunt, AIC, CPCU

About Brian Hunt, AIC, CPCU

Commercial Underwriter II
Tower Hill Insurance Group

Brian started his insurance career with State Farm in St. Paul, MN, in 1998. In addition to handling property and liability claims, he served as part of the National Catastrophe Team, following tornadoes, hurricanes, and hailstorms across the country. He made several friends named Charley, Frances, Jeanne, Ivan, Wilma, and Katrina. He moved to Florida in 2009 to manage a catastrophe office in Jacksonville, and because of a girl (now wife) his path led him to Gainesville and Tower Hill Insurance. In his free time, Brian is an Ironman triathlete and also enjoys writing about local and national history.