If an insured cancels their Business Owners policy mid-term due to replacing with another company, we have an insurance company that cancels short-rate. However if the insured cancels due to sold, closed or ceased operations, then they do a pro-rata. They utilize the ISO BOP forms. Wouldn't this be considered discrimination? The insured was with this company for over 40 years. The ISO cancellation states: if we cancel, the refund will be pro rata. If the first Named Insured cancels, the refund may be less than pro rata. We feel this is discrimination as the insured was replacing with another company. Please advise.

Vermont Subscriber

Each state has specific statutes that determine whether a carrier may cancel a policy short-rate and the provisions under which it may do so. A short-rate provision allows the insurer to retain a percentage of the unearned premium as the penalty to offset their fixed expenses incurred in issuing the policy. Regardless of how long the insured was with the same company, that company still has expenses involved in underwriting, rating, and issuing the policy and the annual premium was counted as income on the carrier's balance sheet as of the time of policy issuance, even though it was not fully earned at the time. As a result, the carrier is entitled to some portion of the premium to offset these expenses.