Legislators in Maryland have recently proposed a new piece of legislation that would disallow insurance companies from requiring their policyholders to buy multiple lines of insurance together, a practice known as bundling. This bill was written in response to complaints from some consumers about being forced to buy an additional line of insurance in order to keep their existing plans, what opponents call “forced bundling.”
“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 homeowners 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.
Maryland’s proposed legislation to curb bundling requirements for insurance policyholders sounds good on paper, but insurance companies argue that the new regulations could have serious unintended consequences for Maryland consumers. Disallowing bundling requirements could make homeowners insurance less available.
Those who live in Maryland’s Eastern Shore have had difficulty obtaining homeowners insurance, and bundling auto with home provides an incentive for more insurers to continue offering coverage in that region. If they lost that ability, one would predict they’d pull back, and the gap in available coverage would grow even wider.
Coverage along Maryland’s Atlantic Coast has been controversial in recent months, with many insurance companies pulling out of the area due to the high cost of insuring homes there and their need to maintain strong credit ratings.
The main reason some companies insist on bundling is simply that homeowners insurance is often a money-losing business, or at the least, one with relatively poor returns. That’s why there are many auto insurance-only companies (Geico, Progressive, etc.) but outside of Florida, virtually no homeowners insurance-only companies. So, if forced to stop bundling, those companies would most likely simply cut back on their homeowners business except for the most profitable and least catastrophe-prone locations.
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.