Policy Issues: Let's thaw relations between agents, policyholders

Ah, April! Spring is in the air and the world is renewed! Sure, we had to get through summer, fall and winter to get here. But on a clear, fresh morning, hope springs eternal once again!

Wouldn't it be great if the insurance world had such a season? We need one. True, we have our good days and bad, but for quite a few years now--at least in relationships with our clients-winter has been seriously eating into spring. And judging from a recent CNBC Business Nation article (originally posted on March 3, 2008 and located at press time at www.msnbc.msn.com/id/23409995), the chill is only settling deeper into our bones.
Please understand I'm not assuming CNBC has no bias, or that every opinion expressed has the ring of biblical truth. What we should focus on is the consumers' tone of voice, contrasted with the responses from industry spokespersons.
For example, one homeowner quoted in the article is clearly upset about the settlement her insurance company offered her after a loss. Her comments appear in the context of how frequently the issue of underinsurance arises following catastrophes. I've written about this repeatedly over the years. Whether the cause was Hurricanes Andrew and Katrina, California wildfires and earthquakes, or Midwest tornadoes and hailstorms-you name the catastrophe, homeowners (and commercial risks) are underinsured.
The quote begins with an assertion from Robert Hunter, insurance director for the Consumer Federation of America:

Hunter estimates as many as half of American homeowners don't have adequate insurance. And while the industry says that's usually the fault of homeowners not keeping their policies up to date, that doesn't explain the case of Karen Reimus. Not only did the company refuse to pay her policy limit, but it turned out the limit itself was too low. "We had a brand new policy," she said. "And not only did we have extended replacement, we bought the earthquake rider. I mean, we did everything we possibly could to be properly insured." CNBC: So when the insurance industry says that this whole issue of underinsurance is really the insured's fault, what does your experience tell you about that? Reimus: I didn't pick the number on the policy, they did. They used their cost valuation software, their program, and they came up with a number. You know, when I go to the dentist I don't say, "Oh, are you sure that's a cavity?" I went to an insurance professional. ... I thought, "OK, they know what they're doing."

Full disclosure: Regular readers know that I've ranted over the years that agents and carriers need to get out of the valuation business, that we aren't that good at it despite all our fancy software programs and checklists, that it's misleading for insureds to think they can rely on our accuracy, and it can only kick back on us at the worst possible time--when an insured suffers a loss. To those who have consistently told me we have no choice, or that such valuations offer a real service to our clients, I simply submit Ms. Reimus as Exhibit A in my favor.

Regardless of how you feel about the valuation issue, the insured is entitled to her point of view--and it's one that I've heard and read repeatedly all over the country. Notice also how her last paragraph ties in perfectly to the message agents insist their clients need to appreciate--that agents are professionals whose advice is key to having the proper protection. OK, so she trusted her agent and is clearly upset. Now, I don't know how much experience you have in dealing with people who are upset, but you can safely say the following comment didn't calm anyone down:

"Insurers can be very proud of their performance, both in the wake of major disasters across the country, whether it's Hurricane Katrina or the California wildfires, or on any given day of the week," said Robert Hartwig, president of the Insurance Information Institute, which speaks for the industry. CNBC: To what extent are the profits coming at the expense of policyholders and their coverage? Hartwig: There's no inconsistency between the profits insurers are generating and the level of coverage and service that customers are getting. CNBC: One of the things that we've heard a lot about and that regulators and others tell us is becoming more prevalent, is what they call lowballing, where people will file a claim, the scope of loss comes back and there are things that are missing. ... Is lowballing a problem? Hartwig: There is no such thing as lowballing in the homeowners insurance industry. CNBC: No such thing? Hartwig: That's right.

Sure, his quote may be taken out of context. My point is not to demean Bob Hartwig, who does a tremendous job. But "no such thing"? What part of "never say never" did we miss? Obviously, something is going wrong somewhere. And while the vast majority of folks in our industry are honest and ethical, we all know at least a couple of knuckleheads who evidently consider lowballing a minor issue. Work comp and CGL payroll estimates, anyone?
Here's what I'm looking for: I want us to wake up to the fact that, just like men and women in that book about Mars and Venus, what appears to be a simple conversation is actually two conversations taking place simultaneously. On one side are the policyholders who clearly feel something has gone wrong, and on the other are industry folks who seem to be insisting, "Move along, now--nothing to see here."
May I suggest that what we're facing here are not just coverage and risk issues, but a breakdown in basic communication? In my E&O seminars, one of my examples that resonates with every class borrows the famous line from the classic Paul Newman film Cool Hand Luke: "What we have here is a failure to communicate." And though the movie was released in 1967, the last 40 years have evidently taught us little. Every day, the same lesson is repeatedly hammered home. Key reason for failure in relationships? Bad communication. Biggest problem between parents and children? Communication. Clients and agents--"We never talk anymore."
There are many more examples in the CNBC article of the same type of communication breakdowns. Consider these final comments from our homeowner above:

CNBC: These insurance companies are businesses. They're in to make a profit. You would expect them to negotiate a little bit. Reimus: I'm going to have to beg to disagree with you there. I don't think there's negotiation over policy coverage that I paid for. I paid that coverage. They were very happy to take the check. "Our house had just burned to the ground and anything and everything we ever had was gone," she said. "They use advertisements that said if something bad happens, they're going to put me back. And I paid good money for that coverage. I shouldn't have had to fight that hard. And I shouldn't have had to fight at all."

Again, you don't have to agree with Reimus to understand her anger. As we all learned in basic licensing, insurance contracts are a policy of "adhesion"--meaning since the carrier writes the contract language with no input from the homeowner, the insured gets the benefit of any ambiguities at time of loss. It's a very short logical leap from that basic concept to one that says, "If I have little or no ability to negotiate my premiums, why should the carrier have the right to negotiate any disputes downward at time of loss? Fair is fair."
So, in the spirit of spring, let's together swear a mighty oath! It's time to throw open those windows and blow out those stale arguments over who's trying to take advantage of whom. We have valuable products and services to offer our clients. What's missing is a true dialogue. If they misunderstand what we're offering, they suffer and so do we. If we misunderstand what they're seeking, we suffer and so do they. Time to meet somewhere in the middle and have a talk.
As Reimus states so eloquently, "I shouldn't have had to fight that hard." I agree. It's spring. Let the thaw begin.
Chris Amrhein is an insurance educator and speaker with more than 30 years in the industry. Readers may contact Chris at chris@insuranceisfun.com.