A life insurance rate hike was denied by a federal judge who argued the increase, which tripled policyholder’s current premiums, was a contract violation.
Policyholders sued Indiana-based Conseco when the company wanted to raise premiums three-fold in 2002.
Conseco Investment Failure Causes Rate Hike
The rate hike was initiated by Conseco after the company lost a bundle in an ill-judged financial acquisition of mobile homes, according to Investment News. Conseco declared bankruptcy and it was then that the firm proposed to increase their client’s premiums to cushion their financial loss.
The Department of Insurance, which regulates insurers to protect consumer investments, mandated the financially-weakened Conseco to beef up its cash on hand by $100 million dollars. Thus ensuring the company had enough cash to cover claims on its existing policies.
Conseco responded by putting into action the premium increase on currently policyholder’s insurance policies. Bankrupt and financially scrapped, the company looked to it’s customers to fill the void.
How Did Policyholder’s React?
Conseco policyholders took legal action, determined to fight the massive rate hike in the courtroom and not simply swallow the increase.
Attorneys for the policyholders argued the “rug would be pulled out from under” people who had paid their premiums for 20 years, since the rate increase would have become effective in year 21 of the policy.
Experts say the case demonstrates another reason for customers to read the fine print of any legal document or insurance policy they sign, ensuring they understand what the insurer can and cannot do within the terms of the contract.