Is a Drastic Increase in Insurance Cost an Act of Bad Faith?
Insurance companies operate as businesses; therefore, they exist to make money. Their products are essentially paid promises. An individual purchases an insurance policy and pays a monthly premium to maintain coverage under that policy, and the insurance company promises to cover the policy’s contents if a situation meets certain conditions. Insurance companies lose money when they must pay out on coverage claims, but the law requires insurers to handle and process claims in “good faith.”
“Good faith” in the insurance world means that an insurer must be honest about how the company handles its customer accounts, even if it costs the insurer money. While slight premium increases are generally normal, a customer’s insurance policy should carefully outline the insurer’s policy when it comes to premium rate increases, justification for such increases, notification policies, and the consumer’s options for changing or terminating a policy.
What Is Bad Faith?
Due to fluctuations in the overall economy and specific insurance markets, some insurers periodically increase their premium rates. If an insurer does this in a reasonable manner to cover the cost of future claims, they should be able to provide sufficient evidence to justify the premium increase. However, if an insurer suddenly implements a drastic increase in premium costs with little to no justification, this could constitute insurance bad faith.
The Transamerica Case
A recent lawsuit against Transamerica Life Insurance Corporation occurred due to bad faith practices. A consumer watchdog group built a lawsuit against Transamerica after the company announced it would increase insurance policy premiums on existing customer policies by as much as 38%. The justification for this change, according to Transamerica, was to offset the cost of future policy payouts. The real reason behind this move was to subsidize the cost of meeting the guaranteed interest rate the company had been promising to customers since the 1980s, to cover lost revenue, and to encourage policy holders to cancel their policies.
Transamerica’s life insurance policy guaranteed policyholders no less than 5.5% annual interest on their life insurance savings with the company. If a policy holder cancelled a policy, or could not make payments and allowed coverage to lapse, the money saved would be lost. The premium hike intended to cause many policy holders to drop or lose coverage, thereby saving the company a great deal of money in future coverage costs. The consumer watchdog group’s case sought remedial action in the form of restoring lapsed or cancelled accounts resulting from the premium increase, as well as punitive and compensatory damages to policy holders affected by the change. This case is a textbook example of insurance bad faith.
Insurance Bad Faith Attorneys
Insurers acting in bad faith can cause serious damages to policyholders, including financial ruin, lost savings, and other negative outcomes. Many Americans deal with insurance companies every day for a variety of reasons, and they should reasonably expect insurers to handle their claims in good faith. Anyone who suspects bad faith when dealing with an insurance company should contact a reliable insurance bad faith attorney as soon as possible. An experienced attorney will know how to handle insurance companies that do not process claims in good faith and help policy holders recover their losses.