How this insurer is tackling short-rate cancellation fees during COVID-19

One mutual insurance company has decided to stop charging short-rate cancellation fees during the coronavirus (COVID-19) pandemic.

“We have removed the short-rate penalty in all circumstances during this pandemic,” Enrico Mastrangeli, vice president of distribution and member innovation with The Commonwell Mutual Insurance Group, told Canadian Underwriter Monday. “This applies to all lines of business: residential, farm, commercial and automobile.”

Short-rate cancellation fees take effect if a policyholder cancels their policy before its expiration date. This is done by calculating the premium an insured owes in a manner that is not proportionate to the number days of coverage; in essence, it’s a type of penalty for cancelling before the policy expiry date, Mastrangeli explained.

Why did The Commonwell decide to remove short-rate cancellation fees?

“We believe that if a member (policyholder) truly needed to cancel their policy because of the financial impact of the current pandemic, the last thing we wanted to do as a member-centric organization was disadvantage them further,” Mastrangeli said.

“Further, we trust our broker partners to provide the necessary counsel to our members on maintaining their insurance policies where the subject property or automobile is still exposed to risk. Where there are financial strain considerations, our broker partners can provide trusted advice on the coverage options available as an alternative to the cancellation of the entire policy.”

Last week, Ontario broker Adam Mitchell of Mitchell & Whale opened up a discussion on LinkedIn about ending short-rate cancellation fees. “Dear insurance executives,” he posted. “Start having very real chats about killing the short-rate calculation.”

His LinkedIn post led to a lively debate on the social media platform. Clinton D’Souza, senior director of innovation strategy with ISB Global Services, agreed that removing the cancellation fee was a good idea, especially in the COVID-19 environment when many customers are struggling. “How are insurers going to handle the flood of non-payments that will come in during this time?” he asked.

Another poster, from BrokerTech Ventures (a broker-led investor group in Des Moines, Iowa), argued for keeping the short-rate cancellation fee. “No carrier wants to have a customer for a short period of time,” he wrote, while acknowledging there are alternate carriers for customers who want a short-term relationship.

“Adam Mitchell, I don’t disagree that it’s something from the past,” Lawrence Lipman said of the short-rate fees. “And I don’t disagree that our industry needs improvement. However, a contract is a contract. And when you are the broker and you’re in the middle between a carrier and your customer, it’s our job to point out good, the bad, and the ugly. As far as ‘should insurance companies provide flexible payment or cancellation during these times?’ I’m betting they will.”

Related: What Canada’s brokers have asked of insurers on behalf of Canadians in dire straits

Canadian Underwriter reached out to several insurers to see if they are considering removing short-rate cancellation fees. Wawanesa Mutual Insurance Company said last week that, together with brokers, it will “make every attempt to avoid policy cancellations for non-payment of insurance premiums on direct-bill policies for the foreseeable future.”

Said Carol Jardine, president of Wawanesa’s Canadian P&C operations: “For any of our policyholders who are having financial difficulty and are unable to pay their insurance premium, we are working hard to make our payment options as flexible as possible right now. Independent insurance brokers can help people with any questions they may have, and rest assured that we will take extra care in dealing with people who are in financial stress through these special circumstances.”

If any customer has received a notice of cancellation, Wawanesa is asking them to immediately contact their broker. If a customer’s bank account lacks funds to pay their monthly insurance premium on direct-bill policies, Wawanesa will be waiving insufficient funds fees (NSF) until at least May 25, 2020. For policyholders that have premiums due in a lump sum at renewal, Wawanesa will work with their broker to provide more flexible payment options wherever possible.

Trisura Guarantee Insurance Company noted on their website that if an insured requests cancellation of their coverage mid-term, “Trisura will calculate any return premiums on a pro-rata basis. Minimum retained premiums on policies will also be waived until the Emergency Declaration has passed.”

Editor’s Note: This story continues to develop and more information will be added when it becomes available.