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UPDATED: Mar 13, 2020
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Car insurance companies profit by paying less in claims than they earn through collecting premiums. People who are at a low risk for having a car accident pay lower premiums than those who are most likely to file claims. Because of this, car insurance companies determine their rates based upon a complex set of calculations that take into account a driver’s age, driving history, credit score and many other factors. If you have a poor driving record or otherwise pose a risk of being in an accident, your insurance premiums will rise accordingly.
Rate increases are not the only tool that car insurance companies have to control a customer’s risk. Particularly high-risk drivers (or those who have filed a large volume of claims) may face having their policies canceled. This is not a common occurrence, but some people may find themselves dropped from auto insurance if they pose a significant risk in their driving habits. Your auto insurance can also be dropped by the company if you participate in insurance fraud or any kind of misrepresentation.
Auto insurance companies can drop you at any time within the first 60 days of a new policy without giving any reason. These first 60 days are a trial period that allow the company to make sure that you are a good match with them. After this period, they must provide reasoning for your cancellation; they do not have to give you advance warning, however, so the first you learn of your cancellation may be that the policy has been dropped.
Misrepresentation and Fraud
The fastest way to be dropped from your insurance is to engage in fraudulent activity. Insurance fraud is a serious matter that can lead to criminal charges as well as lost insurance, so it’s important to always maintain honesty and integrity with your company. While it may be tempting to misrepresent facts to save money or make more from a claim, it’s not worth the risk of losing your coverage. There are many different ways an insured might engage in dishonest activity with a company:
- Trying to pass off preexisting damage as part of an on-going claim
- Allowing excluded drivers to drive your vehicle
- Insuring a vehicle you do not own or have no right to insure
- Providing false information about what happened in an accident
- Lying to your company about where you live or any details about your driving habits
If your auto insurance company suspects that you may have lied about a claim or falsified any policy information, your account will be forwarded to their special investigations team (SIU). The SIU department will investigate the situation and determine whether any fraudulent activity occurred on your policy. If so, your claim will likely be denied and you may face policy cancellation.
High Risk Driving
Even people who are completely honest with their car insurance company may still face policy cancellations if they are very risky drivers. If you file multiple accidents in a short period of time, your insurance company may refuse to renew the policy. Although it seems counter-intuitive, auto insurance companies are more likely to drop a person who files multiple small claims than someone who files several large claims. Insurance companies lose money and manpower in settling minor claims, and want to discourage people from filing claims that are just a few dollars more than the insured’s deductible.
In addition to filing multiple claims, another reason your insurance company might drop you is if your driver’s license is suspended. In many cases, driving under the influence is an automatic policy cancellation; if you are convicted of DUI, and especially if you have an accident while intoxicated, your policy may be automatically dropped by the insurance company.
High Risk Policies
Because liability insurance is a state requirement, people who have their insurance dropped are required to find another insurance company to insure the vehicle. If most insurance companies refuse to accept a driver, the individual may need to purchase a policy from a high risk insurance company. High risk insurance is usually more expensive than other types of policies, and may not have the same coverage available.
After several years of safe driving, you may be able to qualify for a lower-cost car insurance with a regular provider. It may take awhile for your driving record to clear, but insurance is a competitive business and companies are willing to be forgiving if you are no longer a high risk.