Image: Insurance © Hemera, age fotostock

1. 'We have our own caste system'

Sam Mayer, a physician in suburban Chicago, had insured his home, car and life with Metropolitan Life Insurance for 10 years without ever filing a claim, until a damaged roof and a burglary led to two claims totaling $3,000. Mayer promptly installed a home-security system. But instead of giving him a discount, the company dropped Mayer from its preferred coverage, citing his "claims history" and instead offered him its standard carrier at a higher rate -- even though his risk profile hadn't really changed.

("Homeowners insurers may sometimes offer a change in conditions of coverage of a consumer's policy at renewal in order to continue to offer a policy to that individual whose risk profile has increased," a MetLife spokesperson says. "This often occurs when a customer files more claims than average in a short period of time.")

Indeed, almost all insurance companies slot their policies into different categories, based on a variety of factors, including your credit scores and the location of your home. But even if your risk profile doesn't change in any substantial way, you might still be shifted from a company's preferred carrier to its more expensive counterpart, says Jim Davis, a retired public-information director of the Texas Department of Insurance.

"If you're not in the preferred carrier, ask why," urges Davis. Your agent -- or even the insurance company itself -- may be able to move you into a more favorable slot. Also, it's worth shopping around. A home that may be considered "high risk" for a small regional carrier could actually be deemed "preferred" by a bigger outfit such as State Farm.

2. 'Anything out of the ordinary makes us really nervous.'

Everyone knows that if your home is near the water or in an earthquake-prone area, insurers will shun you. Regulators can't do much about that. But some insurers use illegal underwriting guidelines to redline -- the industry term for "discriminate against" -- certain groups or locations.

For example, agents say they often get memos identifying undesirable ZIP codes or reminding them to stay away from couples who are having problems in their marriages. Bob Hunter, the director of insurance for the Consumer Federation of America, describes his "favorite" memo from a company advising its agents: "Before writing a policy, drop by the house after work hours and see if the owner is sitting on his porch in a T-shirt and drinking beer."

If you think you've been discriminated against, raise a fuss -- as did an elderly woman who was purchasing a home with a companion. She was denied coverage due to "an additional nonrelative listed as the named insured," even though all other information was acceptable under company guidelines, according to the agent's report. The woman contacted an attorney and the American Civil Liberties Union. The response: The insurance company said it had made an error and immediately offered coverage.

3. 'One wrong move and we'll drop you . . . '

As insurance companies tighten their belts, they're getting to be even more particular about whom they'll cover and whom they won't. You could potentially file just one claim and get tossed out; indeed, you may not have to file a claim at all to have your coverage terminated. And once you've been dropped, very few insurers will want to touch you.

"Insurance companies are cold and hard," says independent agent Michael Grace of Baton Rouge, La. "They believe that if you get hit once, you'll probably get hit again."

That's what Mike Martin discovered after his Labrador took a nip at an appliance repairman and Martin's insurance company paid out a claim. When his policy came up for renewal, he was shocked to learn that he was being dropped. Martin, a financial planner, says he spent the next couple of weeks frantically calling up insurance agents to get a new policy. But since dog bites are a red flag for insurers, he was frozen out.

Alarmed by his lack of coverage, the company holding his mortgage forced Martin to join a special "insurance pool," which cost five times more than his original policy. It wasn't until he filed a complaint with the Maryland Insurance Administration that he got his original policy reinstated.

"I've seen people being discarded by their insurers for reasons much less ominous than a dog bite," the consumer federation's Hunter says. Some will drop you if you start an at-home business, while others will label you too risky if you've missed a credit-card payment or two.

4. ' . . . especially now that Big Brother is watching'

Privacy isn't so easy to hang on to in the information age. When it comes to home insurance, companies now have access to their own version of a credit report -- and it reveals all sorts of information about you, sometimes even past behavioral patterns. The most pervasive source of information is called the CLUE report, short for Comprehensive Loss Underwriting Exchange, which enables insurers to check the claims history of both the homeowner and the property being purchased in order to assess the risk of loss.

Insurers contend that they need such services to weed out dishonest customers who attempt to hide their claims histories. But the problem is that, even when you've had legitimate claims in the past, you're guilty until proven innocent, says Linda Ruthardt, a former commissioner of insurance for Massachusetts. Once a person has been branded a high-risk applicant and rejected by one insurer, others are not likely to provide coverage.

5. 'We're more secretive than the CIA.'

Here's a little test: Call your insurer and ask how many claims it would take for the company to drop you or deem you "risky." Chances are you won't get much of an answer. Even if your insurer has written guidelines, it's under no obligation to share them with you. And when an insurer doesn't have written guidelines, its decisions can border on the arbitrary.

"It could take some middle manager glancing at the company's loss records to decide that the cutoff should be lowered from three claims to two claims," says Ron Sundermann, a retired insurance agent in Cedar Rapids, Iowa. And agents won't get a bulletin to notify them of the change, so they have no way of advising a client on whether to swallow the cost of a $1,000 roof damage or pass it along to the insurance company and be penalized for it.

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