Sketchy business practice, or insurance S.O.P.?
September 23, 2011 8:45 PM   Subscribe

Sketchy-business-practice-filter: Recently got a letter from our insurance agent (car and home) saying, effectively, "We've reviewed your coverage, and according to some system we have (360 Value), the replacement cost of your house is roughly 30% more than what the current policy covers. If we don't hear from you in 30 days, we're raising your coverage to that $BIGNUM."

Now, the "we're doing this if we don't hear from you" piece is pretty sketchy to me by itself, but the more annoying piece is that $BIGNUM is a somewhat larger value than I've ever seen given to this house, on any appraisal. Almost twice what we paid for it, in fact. (This is dwelling value only, not contents.) Now, I understand this is replacement cost, to rebuild a similar house in the same spot if it were completely destroyed, but it still seems excessive.
So, how should I handle this? Is this a normal practice? Should I start looking for a new insurance agent? (Difficulty is that we've been with $AGENT for a long time, and she is sort of a family friend (though not a close one).) If it is a normal practice, should I accept it and move on, or request that they keep the coverage where it is (about 150% of purchase price)? (We might not be able to exactly rebuild for the current coverage, but could certainly buy something similar.)
posted by jferg to Home & Garden (16 answers total)
Wait...are your premiums actually going up, or just your coverage?
posted by Pomo at 8:51 PM on September 23, 2011

Best answer: Nothing you've said here suggests "sketchy." You may not like that your insurer has appraised the house at twice what you've paid for it, and you may not like what are presumably higher insurance premiums for that appraisal, and you're free to find an alternate insurer or else contest the appraisal.
posted by dfriedman at 8:51 PM on September 23, 2011

Best answer: Just a quick note on the "if we don't hear from you" part: not sketchy, actually, as it is much more likely to get a homeowner's attention if you say "we will charge you more if you don't contact us" than it is if you say "we won't charge you more unless you contact us."

Consider that the replacement value of the home is something that, if not covered correctly, could lead you to significant financial obligation down the road (after all, if you have a mortgage, you can't just move into another house; you have to fix the one you have--er, had.) Better to have you ignore it and be covered at the larger rate, than to have you ignore it and -- after tragedy strikes -- have you be covered at the lesser rate and on the hook for the rest.

Insurance is all about risk management, after all.
posted by davejay at 8:54 PM on September 23, 2011

You could always switch to a different insurer.
posted by schmod at 8:56 PM on September 23, 2011

Response by poster: @Pomo - I only assume that if the coverage is raised the premiums will be too. (I'll talk to the agent next week to verify.)

@dfriedman - It's mostly the "we're raising it unless we hear otherwise" piece that bothers me. It feels like they're trying to slip something by me. But it's also possible I'm just paranoid.
posted by jferg at 8:58 PM on September 23, 2011 [1 favorite]

Response by poster: @davejay - I guess that sort of makes sense (the getting the homeowner's attention thing). I am confused (and this may just be my naivete showing here) about your comment regarding "if you have a mortgage, you can't just move into another house". Assuming the house is damaged to the point of any of these numbers coming into play, what would prevent me from just paying off my mortgage with the insurance proceeds and using the rest as a downpayment for a new place? Either coverage number is significantly more than the balance of my mortgage. (Along the lines of totaling out a car.) Is there something I'm missing?

@schmod - That was implied in my "looking for a different agent" comment, just wrong terminology. But it sounds like I'm the one reading too much into things.

Going to stop threadsitting now.
posted by jferg at 9:09 PM on September 23, 2011

Insurance companies are wacky. Our last insurance company arbitrarily seemed to decide that the replacement cost for our house was going to exceed half a million. Which is totally ridiculous -- we thought that maybe they got confused and thought it was in San Francisco instead of Nebraska -- but they would not budge. We had appraisals, evidence of our purchase price, everything. We found a more reasonable insurer. For some reason they didn't want our business anymore.
posted by Ostara at 9:12 PM on September 23, 2011

What is $BIGNUM/sf? That's how they determine those numbers. I've heard $350/sf for the SF Bay Area iirc.
posted by salvia at 10:47 PM on September 23, 2011

Also I do wonder if it's a tough time for insurance agents. My old one sent out postcards to solicit my business back. Somehow he sent me the same one literally about thirty times. Maybe the sun is in Pisces and the moon is in "insurance companies do wacky things by mail" this week.
posted by salvia at 10:51 PM on September 23, 2011

You need to talk with your agent, and probably with a couple of different companies for comparisons. The amount you paid is pretty much irrelevant -- the figure in question is what it would take to rebuild the house (plus outbuildings, contents, etc); they don't care if you overpaid or underpaid for the place originally.
posted by Forktine at 11:09 PM on September 23, 2011

I think it's sketchy': If we don't hear from you in 30 days, we're raising your coverage to that $BIGNUM. It's a good idea to review coverage, because stuff happens, and if you're under-insured, it's gonna suck. But, in my state, it's usually illegal to sell something on the basis of We're selling you something (and billing you) unless you respond. This is why your state has an attorney general, with a website, and an insurance commission with a website. Call them, send them a photocopy of the mail; they can advise you about it. Insurance companies want to make money, and over-insuring you is probably quite profitable.
posted by theora55 at 12:49 AM on September 24, 2011

Best answer: I used to work for an insurance company and this is not sketchy, but actually in your best interest. The part that you need to act on is determining if this company is the company you want to hold your coverage at the higher replacement value.

You can actually get an appraiser to calculate the replacement value of your come and contents for a few hundred dollars if you don't want to take the insurance companies word for it (although most have fairly accurate "rule of thumb" calculators you can use).

Just so you know, most people are under-insured on their home and contents by anywhere from 15% to 30%. The reality is that if you did lose your home, you'd likely not feel happy that your insurance company didn't push you into having the right coverage. It's a tough spot for your insurer to be in, although their approach obviously came across as heavy-handed. I wouldn't read too much into them raising the price because business is down. They are no doubt aware that the most common reason for people to switch companies is a price increase.

Do yourself a favour and get the right cover no matter who you go with.
posted by qwip at 12:51 AM on September 24, 2011 [1 favorite]

Have a surveyor produce a valuation (reinstatement value) of your home if you think they're so far off. Or, just phone them up and tell them another insurance company will cover $BIGNUM for a smaller premium, can they beat or match it?
posted by dougrayrankin at 4:02 AM on September 24, 2011

We've had this sort of discussion with our insurance company. My house was built in 1900 and coverage that would rebuild to the level of moulding, trim, hardwood floors etc that are pretty standard in houses of mine's age would require a higher replacement value/sf than is typical for insurance coverage around here. Depending on when your house was built that's probably part of why they're adjusting it.
posted by leslies at 5:22 AM on September 24, 2011

Best answer: Ms. Vegetable works for a major insurance company:
Not sketchy at all. This is actually to protect YOU so that you are properly insured. Definitely review your coverage and talk to your agent, but this in no way is sketchy or illegal to me. Your insurance company likely had to file with the state department ofinsurance saying they were doing this for lots of customers, and the state said ok because it really is in the customers' best interests.
posted by a robot made out of meat at 6:39 AM on September 24, 2011

Response by poster: Thanks for helping recalibrate my sketchy-filter, all. I did e-mail with the agent, and she gave me the increased premiums (which I feel it -would- have been nice if those had been in the letter), and while I'm not happy about paying the extra, I will probably deal with it.
posted by jferg at 10:58 AM on September 24, 2011

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