DIFS Announces Insurer Requirements Protecting Consumers From Surprise Reduced Settlements

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Consumer Hotline: 877-999-6442, Michigan.gov/HealthInsurance

FOR IMMEDIATE RELEASE: July 3, 2024

(LANSING, MICH) Michigan Department of Insurance and Financial Services (DIFS) Director Anita Fox has issued a new bulletin explicitly prohibiting insurers from discounting labor costs for depreciation when paying a homeowners insurance claim unless the insured has agreed in advance to the reduction in exchange for a lower premium.

"As a consumer protection agency, DIFS works to ensure that consumers are protected from confusing or deceptive contract language," said DIFS Director Anita Fox. "Consumers might not be aware that their insurer depreciates not only damaged property, but also the cost of labor to repair the damaged property. This new bulletin ensures that beginning next year, consumers who incur a covered loss to their home will not have labor costs discounted from their claim payment due to depreciation unless the consumer chose that coverage in exchange for a lower premium. Anyone who has questions or concerns about the terms of their contract should contact their agent or insurance company. If a resolution cannot be reached, call DIFS at 877-999-6442, Monday through Friday from 8 a.m. to 5 p.m."

Generally, Actual Cash Value (ACV) coverage means an insurance company will pay for property damage based on the current cost to repair or replace it minus any loss in value due to use or wear and tear. Some insurance policies depreciate labor and other intangible items. This can lead to homeowners receiving less money to repair or replace their property. The new DIFS bulletin clarifies that because labor to repair covered damage is not a physical object that can depreciate, consumers may be confused or misled by policies that include labor in the definition of ACV or depreciation. Beginning in January, carriers cannot include this language in their standard policy definitions. However, consumers may be able to include an optional endorsement allowing for depreciated labor in exchange for paying a lower premium.

DIFS is the state consumer protection agency that regulates the insurance industry in Michigan. DIFS reviews insurance company filings for compliance with applicable laws, regulations, and bulletins. Through this review process, DIFS identifies and disapproves all policies with misleading, inconsistent, or ambiguous language that may deceive consumers. Once this new bulletin takes effect, DIFS will check insurance policies and forms for the inclusion of labor or other nontangible items in the insurer's standard definitions. DIFS will reject filings that do not comply with the bulletin.

For more information about homeowners insurance in Michigan, visit Michigan.gov/DIFS. Consumers with questions or concerns may call DIFS at 877-999-6442 Monday through Friday from 8 a.m. to 5 pm., or file a complaint online at Michigan.gov/DIFSComplaints.

The mission of the Michigan Department of Insurance and Financial Services is to ensure access to safe and secure insurance and financial services fundamental for the opportunity, security, and success of Michigan residents, while fostering economic growth and sustainability in both industries. In addition, the Department provides consumer protection, outreach, and financial literacy and education services to Michigan residents. For more information, visit Michigan.gov/DIFS or follow the Department on Facebook, X, or LinkedIn.

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