A lot of people try to buy their residential insurance from the same company that they get car insurance from. This often results in a pretty significant discount, and, generally, it’s just a little easier to deal with one insurer instead of two. This practice is called “bundling,” but a new trend has been growing over the past 12 months where insurers actually require their residential-property policyholders to purchase auto coverage from them or face getting their residential coverage dropped.
The biggest insurer that is reportedly implementing this practice is Allstate, which has received some significant media coverage for doing so. There may be other insurers currently doing it, but none as high profile as Allstate.
Most recently, Allstate confirmed that it sent out notices to some 10,000 South Carolina homeowners coverage policyholders, notifying them that if they did not also buy auto coverage from them by the end of their policy term, they could not renew their homeowners policy. Allstate confirmed it was sending out similar notices to about 45,000 North Carolina policyholders in November 2011. Around the same time, about 4,000 Arkansans got similar notices.
Insurers often give lower car insurance quotes to policyholders who bundle policies mostly because it’s an easy way for them to get more business, but actually requiring policyholders to bundle coverage is done so that the insurer is able to manage risk better. There have not yet been any reports of states stopping insurers from requiring customers to bundle policies.
All of the states where Allstate has instituted forced bundling are in the Southeast, where tornadoes and hurricanes aren’t out of the ordinary, especially in recent years. And, generally, these weather events hit homes harder than automobiles, at least financially. For example, data from Missouri regulators show that the devastating Joplin tornado that hit last May resulted in more than $462 million worth of homeowners claims. Meanwhile, the total amount of auto coverage claims came in at $54.3 million. Cars are a lot cheaper to replace, and it’s a whole lot easier for residents to move their cars out of danger’s path than it is for them to move their homes.
Since homeowners coverage for a given area may be less profitable than auto insurance, an insurer may try to boost their overall profitability by requiring bundling. The policyholders targeted for forced bundling aren’t chosen at random. For example, an Allstate spokeswoman said that the South Carolina policyholders getting the notices are only those who have policies on homes that are more than 10 years old and provide less than $220,000 worth of coverage.
Not every policyholder who receives a notice about the need to bundle policies is thrilled to find out about their need to buy homeowners coverage or get dropped. Some customers are voicing their discontent, and legislators in Maryland recently attempted to ban the practice in their state.
“This is not the first outrageous problem I’ve had with this company, but it’s definitely my last,” a reader commented on an Online Auto Insurance News story on forced bundling in Arkansas. “I will NOT be strong-armed into buying car insurance from them.”
In committee meetings on a Maryland bill to ban forced bundling, opponents of the practice called it illegal and discriminatory. Ultimately, though, legislators said they felt the marketplace for homeowners coverage was good enough to where a person who was dropped for not bundling could simply find another insurer to secure coverage from.
Whether the practice will continue to spread and get wider implementation from other insurers remains to be seen.
