The Underwriting Period

By:
October 9, 2017

Every state and the District of Columbia grants insurance carriers an “underwriting period.” Insurance carriers are granted broad authority to cancel a newly-written policy during this statutorily-limited period. Note, the underwriting period applies to only newly written policies, not renewals of existing policies.

Insurance carriers are given the opportunity to confirm all underwriting data provided in the application during the underwriting period granted by the state. During this period, the carrier may “pull” underwriting data such as driving records, insurance (credit) scores, loss histories, and they may even inspect the property. All this is done to assure that the risk presented in the application is, in fact, the truth of the risk.

Without an underwriting period, insurance carriers may be “stuck” on a risk they accepted based on a less-than-accurate application (which we all know would never happen). The only way the carrier could cancel in these situations would be subject to the statutory mid-term cancellation allowances, which can be somewhat limited, listing specific reasons a policy can be cancelled.

Limitations on Cancellations

Statutes apply one of two “levels” of limitations regarding the reasons a policy can be cancelled during the underwriting period. Policies can be cancelled for:

Any valid reason; or
Any valid underwriting reason.

Any Valid Reason

There is no limitation on the reason a carrier can cancel. An insurer can cancel for “any” reason provided no other statute is violated (such as an unfair trade practice statute).

Any Valid Underwriting Reason

“Any valid underwriting reason” essentially means the underwriter can use any reason that would have kept him or her from writing the risk initially. For example, if the true extent of the loss history is discovered after the effective date and during the underwriting period, and such knowledge up front would have resulted in a different underwriting decision – that is a “valid underwriting reason.”

Length of Underwriting Period

A 60-day underwriting period is by far the most common. Thirty-eight states allow a 60-day new policy underwriting period. The shortest allowed is 30 days (Washington DC) and the longest is 120 days (South Carolina). Further, several states apply multiple underwriting periods based on the line of business.

Click here to find the underwriting period for your state.

Last Updated: October 13, 2017

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