My blog of Sept. 29 about the need for greater simplicity in small-business insurance policies prompted a number of intriguing reader responses, running the gamut from those who were completely sympathetic to others who were totally dismissive.
Small-business consumers queried about their customer experience in a pair of focus groups run on behalf of Deloitte’s Center for Financial Services were nearly unanimous in their dissatisfaction with the way their insurance policies are drafted, complaining they appear to be “written by lawyers for lawyers.”
The blog in question (“Could Policies Written in Greek End Up Being Trojan Horses?”) reported that the vast majority of small-business insurance buyers in attendance couldn’t make sense of what their policies said or what they were meant to cover, leaving them at the mercy of interpreters such as lawyers, agents and brokers. More than a few said they suspected this lack of clarity might be intentional to give carriers an edge when a claims dispute arises.
One claims specialist posting online under the moniker “Insurance Veteran” wrote that “as a large loss adjuster who deals with these wordings on a daily basis, I sympathize with the plight of the consumer.” He added that “we frequently see on subscription policies the different coverage interpretations proffered by the insurers at risk. If the insurers themselves are discussing how coverage applies to a particular loss, how does the consumer stand a chance?”
This adjuster suggested that “simple-language policies would eliminate a lot of the players that feed at the trough created by coverage disputes.”
An underwriter from the United Kingdom who recently retired after nearly five decades in the business e-mailed to say, “I could not agree more on the aspects you have outlined and the prominent points you have underlined,” adding that “it would…be so nice if the documents for all types of insurance were clear, non-ambiguous, and did exactly what they were supposed to do and what was negotiated on behalf of the client.”
According to this underwriter, while efforts have been made and are still ongoing in the United Kingdom to accomplish this laudable goal, there is “still a lot of work to do,” particularly in the multilingual global market in which he operates. He noted that he had to deal with coverage written in 11 languages during his underwriting tenure—“not that I spoke/speak them all, but through years of seeing the texts, I could actually understand and accept and sign these documents.”
However, one reader with a product-development background at a major insurance company made a strong case in an e-mail to me that while policies might in fact be written by lawyers for lawyers, that’s not necessarily done by insurers for a nefarious purpose—and may not even be a bad thing when all is said and done.
“At the insurers I've worked for, the objective is to avoid unexpected expansion of coverage beyond the level that was priced for,” he wrote. “When a business owner sustains a loss, and it's a type of loss that doesn't lend itself to insurance treatment or is a type that's covered by insurance the business didn't buy, then the business' legal counsel will sometimes petition a court to expand the interpretation of one or more policies the business did buy, perhaps to widen that policy's Insuring Agreement and/or narrow the scope of the policy's exclusions.”
He went on to explain that “a tactic often used is to assert one or more of the policy's provisions are ambiguous, since ambiguities in contracts of adhesion work to the benefit of the insurance customer.” As a consequence, he added, “insurers write their policies in language that judges (more lawyers) are least likely to consider ambiguous.”
This reader also pointed out that “since what is/isn't considered ambiguous varies from state to state, it's sometimes necessary to throw in multiple safeguards to preserve the extent of coverage that was priced for (and thus any hope of profitability for the insurer).”
The result is almost inevitable, this reader suggests: “After countering creative opposing counsels' arguments (past and imagined) from 51 jurisdictions, while preserving as much court-tested language as possible, the final language can become rife with conditions and exceptions, despite the drafter's best efforts to preserve readability.”
This reader went on to assert that in many cases, small-business insurance policies are “best interpreted by someone who has some training in legal concepts and has an understanding of case law in the jurisdiction(s) in which a given account's coverage disputes would likely be litigated.”
Even when using lawyers, according to this individual, “there are gray areas where the reader may have a reasonable expectation of coverage but could be surprised by a judge's unexpected interpretation of a given provision. This situation is true even of ‘easy read’ policies, whose simple-sounding language can't overcome the effect of case-law precedents on how much coverage such policies really provide.”
Indeed, dumbing-down policies might actually do more harm than good, this reader warned. “I've sometimes felt easy-read policies disserve insurance customers by letting them think they totally understand their coverage, unaware of what they still don't know,” he wrote.
Thus, the small-business buyer’s best bet, this reader advised, is to have an expert in their corner they can trust. “I don't want to equate insurance interpretation with medical science because medicine truly is more complex,” he wrote. “But just as a properly trained radiologist can interpret an X-ray better than most patients can, a properly trained insurance counselor familiar with a given jurisdiction's statutory and case law can interpret an insurance policy better than most business owners can. I'm not an agent or risk manager, but I believe this is why independent agents and coverage consultants will always have a place in this industry.”
A fourth reader was a bit blunter about this sensitive subject when he posted his response to my blog. “Most [policies] are easy to read,” this respondent wrote. “Perhaps it’s a schooling problem. If the customers can’t read, then they should hire a tutor—i.e. an independent agent—rather than use the Internet for ‘el cheapo’ coverage. If the agent doesn’t explain [policies] to the customer’s satisfaction, then fire that one and interview until they find a good one.”
This reader concluded that “many agents have forgotten how to read and/or are just plain lazy.”
I certainly seemed to have hit a nerve with this blog on the clarity (or lack thereof) of small-business insurance policies and what (if anything) should (or could) be done about it. Thanks to all of those who have already responded on this subject—and feel free to weigh in further with more comments to keep the dialogue flowing.