In January 2023, my monthly column was titled “Insurance Coverage and Television.” I’ve written and spoken e
xtensively about how the property and casualty insurance industry spends billions of dollars on advertising and the vast majority of it is price focused. The article gav
e credit to some advertising that focused on coverage, but it used examples that clearly weren’t covered by the policies of the insurers doing the advertising.
I made my usual lament that we spend so much money on this type of advertising but virtually nothing on actually educating consumers and/or countering destru
ctive bad advice and information—such as an Instagram commercial that claimed that 80% of your auto premium goes into the pockets of agents as commiss
ions, that most people don’t need flood insurance if they’ve never experienced a flood loss, or advice from sites li
ke this blog post suggesting there’s no need to purchase the loss damage waiver when renting a vehicle if you have auto insurance.
But it was the introduction of that January 2023 column that prompted this month’s column:
“Last month, insurance educator Chris Kendall, CPCU, ARM, et al., posted some results of a survey of 2,000 U.S. homeowners on LinkedIn. Conducted or
commissioned by Goosehead Insurance Inc., one of the most revealing statistics was that 65% of policyholders agreed that they “have no idea what my home insur
ance fully covers.” This tracks with a similar survey conducted by Plymouth Rock Home Assurance in 2020 which found that about 70% of U.S. homeowners ar
en’t sure what their home insurance covers.”
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So, perhaps two-thirds of homeowners really don’t know what their homeowners insurance does or doesn
’t cover. The question is, IF they actually read their policies (they don’t and the reality is that many, perhaps most, insuranc
e professionals likely don’t either), would they understand what is and isn’t covered?
At its summer meeting this year, the NAIC’s P&C Insurance Committee heard a presentation titled “Research Related to Transparency in Policy Language.” The r
esearchers of this presentation surveyed 2,500 homeowners about homeowners insurance in seven vignettes involving four claim contexts. The four claim scenarios inv
olved earthquake damage, a deck collapse due to termite damage, liability for a slip and fall, and damage caused by an electrical fire.
Some homeowners were given ISO policy language and others were given no policy language. They were asked to judge whether the losses would be
covered and to state how confident they felt in their answers. The presentation slides referred to a “2010” ISO HO3 policy
. Presumably, this refers to the 2011 ISO HO 00 03 05 11 policy form.
In three of the seven vignettes, providing the actual relevant policy language allegedly had a large and st
atistically significant negative effect on their understanding of coverage. Being able to read the policy language allegedly had a positive effect on their confidence that t
hey understood what the language meant, but they were no more likely to answer the coverage questions correctly than the consumers who saw no policy language.
Errors and omissions (E&O) defense attorneys regularly cite the insured’s duty to read the policy when trying
to defeat some E&O claims. The findings of this research raise questions as to whether that duty is a meaningful defense.
Every state has readability requirements for insurance policies–but “readable” doesn’t necessarily mean “understandable.”
In full disclosure, at least one of the researchers involved in this presentation has been overtly critical of the P&C insurance industry (not without cause on som
e points), so there is the possibility of some bias in the conclusions of the researchers. For example, one conclusion in the presentation was: “Homeowners insurers routinely include non-standard terms in
policies that limit coverage relative to the ISO policy in a unique and unexpected way.” I’m not sure what “non-standar
d” refers to or what constitutes a “unique and unexpected way.”