By Eileen Ambrose, The Baltimore Sun
6:15 PM EDT, March 26, 2012
Many consumers voluntarily buy more than one type of insurance from the same company so they can get a discount on premiums.
But what if an insurer wouldn't sell you a homeowner's policy unless you also purchased auto insurance from it, too?
Some insurers are doing just that.
The Fayetteville Observer reported early this year that Allstate was canceling the homeowner's policies of nearly 46,000 North Carolina customers because they didn't buy auto insurance from the company, while N.C. Farm Bureau Mutual Insurance was taking similar steps with about 28,000 policyholders.
Another report, in Online Auto Insurance News, revealed that Allstate wasn't renewing about 4,000 homeowners' policies in Arkansas unless those customers also bought auto insurance with the company.
Sometimes called "forced bundling," the practice requires consumers to buy a product or service they don't want in order to get something they do want. It's not new. Consumers for years have complained about such bundling among phone service providers and by cable companies that package unpopular channels with must-see TV.
But now this take-it-or-leave-it bundling is coming to insurance. Maryland is weighing legislation that would ban the practice before it becomes commonplace here.
"We need to insure that consumers have a choice," says Peter Killough, the people's insurance counsel, a consumer advocate within the Maryland attorney general's office. "It's one thing to buy a product and they give you a discount. It's another thing to say, 'If you don't buy our product … you can't have anything from us.'"
Maryland's bill, sponsored by Dels. Tom Hucker of Montgomery County and Mary Ann Love of Anne Arundel County, would prevent an insurer from denying or canceling homeowner's or renter's insurance because the customer doesn't also have auto insurance with the company. Likewise, the insurer wouldn't be able to deny auto coverage to customers who don't buy a homeowner's or renter's policy with the carrier.
Insurers would still be able to offer discounts to customers who voluntarily buy multiple policies from the same company.
It's unclear how much forced bundling goes on in Maryland.
Angie Segal, a business coach from Silver Spring, says it happened to her a few years ago. Another insurer offered auto insurance for half the price she was paying with Allstate. Segal, a long-time Allstate customer, asked her insurer for a rate reduction, adding that without one she would switch to the other company.
She says Allstate told her that she had made a claim on her homeowner's insurance in the previous year, and that if she canceled her auto policy she also would lose coverage on her home.
"I didn't want to go find homeowner's insurance if they would drop me," she says. Allstate raised her deductible, which lowered her premium, but the price was still more than what the other insurer offered, she says.
"I really did feel threatened by Allstate," she says. "It didn't seem fair to me. All I was doing was looking for good rates."
Allstate did not respond to requests for comment.
Insurers notify the Maryland Insurance Administration when they plan to change the terms of who is eligible for coverage.
The agency has identified at least one filing last month from an insurer — Florida-based Merastar Insurance Co. — that would require consumers to buy auto and homeowner's policies if they want coverage, says Vivian Laxton, director of public affairs. The filing is under review, she says.
Laxton adds that the agency, which supports the Maryland legislation, hasn't received consumer complaints about mandated bundling. But the agency has heard from about a dozen consumers complaining of raised deductibles that can be lowered if customers buy multiple lines of insurance from the same carrier, she says.
Steven Weisbart, senior vice president and chief economist with the Insurance Information Institute, says such bundling isn't "forced" because consumers have a choice.
"You can walk. You're free to go," Weisbart says. "The market is and remains highly competitive."
Insurance providers that require bundling do so as a marketing strategy to build stronger ties to customers, Weisbart says.
"The more contact, the more relationships you have with a provider, the more likely you are to stay with that provider, to feel good about being with that provider," he says.
But Allstate dropped tens of thousands of customers in North Carolina. Surely, that's not good for business?
"It's possible to be too successful," says Weisbart, adding that some insurers want to reduce their exposure in certain areas. If a company sells all the homeowner policies in a region that's then hit by a disaster, the company could be devastated.
"Many of them truly are assessing whether they are too concentrated" and need to spread their risk, he says.
Bundling isn't bad — if it's voluntary. In fact, you can usually save 10 percent or 15 percent off your annual premiums by getting auto and homeowner's policies from the same place.
But mandated bundling isn't good for the consumer who wants to shop among insurers for the best deal on different policies. Legislators here should pass the bill so Marylanders can maintain their right to choose.
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