Yes, insurance policies can and do get cancelled. There is no contractual agreement that an insurance company has to renew your policy year after year. A policy can cancel for bad claims history, exposure management or non-payment of premium, just to name a few reasons.
Non-payment and bad claims history cancellations are fairly self-explanatory for the most part, whereas exposure management is more complicated and not something a home buyer is really expected to have knowledge of. Insurance companies typically calculate the amount of risk or exposure they have, based on the amount of policies they have per zip code. If the number of policies in a zip code is too high, a company can randomly non-renew policies to get to a manageable amount.
At times, companies will also have to reduce exposure in certain areas to meet new guidelines and will cancel a certain number of policies. There is nothing a homeowner can do to avoid this type of cancellation, but they will be notified well in advance and will have time to search out other options.
In the event of a major disaster, such as the multiple hurricanes of 2004 in Florida, certain areas are damaged heavily, some more than others. If a carrier had too much exposure or risk in that area, there is the chance they would be financially unable to pay all the claims and even become insolvent as happened in 2004. Therefore companies will limit and cancel coverage in certain areas to reduce their overall risk in the event of a disaster and ensure they will be able to pay claims.
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