Happy 4th of July! Or, for you history buffs who believe patriot, Declaration advocate and our second president John Adams had it right the first time, Happy 2nd of July! Or for those who think nothing is official until completely signed, sealed and delivered, Happy August 2nd! Or for those who argue that printing and signing is secondary to actual release to the public, Happy July 8th!
Why the discrepancies? Congress actually approved independence from Britain on July 2, 1776, and John Adams wrote his wife that the date would henceforth be celebrated as the great American holiday. Absent ready access to desktop publishing software or Twitter, it took two days for the resolution to be drafted and printed for the first signatures, hence the document date of July 4. It wasn't read to the public for the first time until July 8. Because not all delegates were present in July, the last signatures were not placed on the document until August 2.
Regardless of historical technicalities, all of these dates are intended to have the same meaning: a celebration of independence and freedom. Yet they are also classic examples of "The devil is in the details." Whether you consider each date serious or silly, each has its advocates arguing in the name of "historical accuracy."
That reminds me of insurance. Although each and every insurance professional agrees that the intent of coverage is to fairly compensate or make whole an insured who has suffered a covered loss, when it comes to the details some are as far apart as July 2 and August 2. Just breathe the terms replacement cost, flood, improvements and betterments, gap coverage, hurricane, coinsurance, or a plethora of other policy provisions, and cue the fireworks!
Perhaps John Adams himself provided the perfect example of how to calm these often stormy waters. He privately maintained to his dying day (ironically or poetically, July 4, 1826) he felt July 2 the better choice, but long before then he publicly acquiesced to the clear preference of the new country's citizens and celebrated the Fourth with pride.
May I suggest that, in the spirit of our national month of freedom, we take a lesson from John Adams? We can all agree that there are technical arguments to be made for often-conflicting interpretations and policy provisions, but let's consider the great value in coming to agreement based upon the clear preferences of our citizens, that is, the policyholders and consumers. Here are but three of a multitude of possible considerations, all with a suggestion as to WWJAD—What Would John Adams Do?
Wind versus flood in a hurricane
Everyone knows the storm is coming. No, not the hurricane, the ensuing claims. Thousands of insureds will line up, fully expecting that after all those years of faithfully paying their premiums, the day has finally come to cash in on those promises of coverage and comfort. Instead, whatever didn't hit their home is about to hit the fan. Was their home first leveled by crashing waves and storm surge, only then to have the winds perform advance debris removal? Or did the wind first rip apart their humble abode, and afterward the remains washed away by raging seas or flood waters? It may seem difficult to determine after the storm has passed, these insureds are soberly told, but it makes all the difference in whether and for how much and by whom their claim will be paid—or not. Soon, what insureds assumed to be a clear and simple claim turns into suits filed by state attorneys general with state supreme courts, engineers summoned to deliver arcane reports, and Anderson, Wolf and Geraldo arriving to document yet another egregious breach of promise and act of bad faith on the part of our industry.
WWJAD: Insureds repeatedly insist in claims, affidavits and court testimony that they believed they were buying "hurricane coverage." So give it to them. Develop a policy or endorsement that applies only for claims arising from a named storm. (Yes, this means the Weather Channel must give up its annoying tendency to heighten the drama of everyday meteorological events by giving them names.""Yes, Andrea, that Bali High is about to collide with J. Low and South Pacific will never be the same. Meanwhile, over Richie Ridge, Casper the friendly Cold Front will appear at dawn!")
The form should include all damages, however caused, arising from the named storm, subject to a deductible and separate policy limit.
Replacement cost
Coinsurance, depreciation, actual cash value, cost new, insurance to value, collectibles, limitations, carve-outs. Exactly how did a once simple and joyously received benefit turn into such a convoluted attempt to legislate morality? When I ask company folks why the complexity, the response inevitably includes some variation on "We can't let them make a profit on a claim." Isn't that horse already out of the barn? If a tornado rips off a 12- year-old roof, they get a new roof. If a fire destroys a carpeted home, they get new carpet. Insureds "profit" from insurance claims every day! Yet in those very common examples are the seeds of a simple solution.
WWJAD: If the insureds replace the covered item with a new equivalent item of equal or greater value, they get full replacement cost up to the current cost new of that item or its current equivalent, up to total policy limits—no ifs, ands, insurance-to-value clauses, percentages or valuation brouhaha. If they don't replace the item, they get actual cash value. That's it.
Auto gap coverage
Unlike property forms, auto claim valuation used to be model of simplicity. We fix the damage to the car, subject to the policy deductible. Auto insurers long ago simplified the whole "limits" issue by building the vehicle values into the rating formula via symbols. Nowhere on my personal auto policy does it list the maximum payable for my car—only that any claim is subject to the deductible. I love it!
Then came manufacturer and dealer creativity to solve what once seemed an intractable problem: How can we keep driving new car prices to ridiculously higher levels when we are already exceeding any rational person's ability to pay? Genius answer: (1) Convince lenders to extend car loan terms from the traditional one- to five-year maximums to what were once considered reasonable terms only for housing mortgages; and (2) if that fails, go with leases in which the buyer's maximum affordable monthly payment can be created by altering the term of the agreement. "Sure, we can get you into that beauty for only $400 a month!
Although such financial wizardry made dealers and drivers happy, insurance policies soon crashed on the rocks of auto values that were falling far below what the lender still required to pay off the loan or lease. Following a wave of angry insureds finding at claim time this "valuation gap" had often grown into catastrophic territory, some carriers started offering often complex endorsements or agreements attempting to pay the difference.
WWJAD: Return to the valuation simplicity (that is, invisibility) of yesteryear by using the same approach long used by symbols: Move "gap coverage" from a claims consideration to a rating step. Just like calculating mortgage life insurance based upon the amortization schedule of the mortgage, why not add a single new debit or credit factor to the rating formula reflecting the effect on current auto value of the type and length of any finance agreement? The carrier gets its premium, the insured gets his or her coverage clean and simple, and dealers keep selling. Don't you just love a win-win-win?
Freedom!
We hold these truths to be self-evident, that all insureds are created equal, that they are endowed by their policies with certain unalienable Rights, that among these are Life, Liberty and at least some possibility that at claims time they'll actually get what they thought they bought.
John Adams and me. Just a pair of dreamers.
Chris Amrhein, AAI, is an insurance educator and speaker, and serves as the chief fun officer at insuranceisfun.com.
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