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To The Point Once again, challenging Is the insurance industry adequately prepared for another "storm"? By Emanuel Levy The headlines left no room for doubt about the allegations that would follow. Bloomberg Markets, a magazine “for and about” professional investors, claiming 260,000 readers, titled the cover article in its August 2007 issue “Insurance Hoax”—and, if that didn’t grab readers, offered the subtitle: “Home Insurers’ Secret Tactics: Cheat Fire Victims, Hike Profits.” Running almost in tandem was the NOW program on the Public Broadcasting System (PBS), with a less provocative headline: “Does Your Homeowners’ Policy Cover You the Way You Think It Does?” The program, which aired on August 17, 2007, in the regular Friday evening spot hosted by David Brancaccio, did not hold listeners in suspense. The answer to the question was a resounding “no,” and disgruntled policyholders told of their wrenching experiences. The NOW presentation was based on the approximately 7,500-word Bloomberg article, which was written by David Dietz and Darell Preston. As representative victims of the alleged insurance company depredations, NOW chose telegenic and articulate men and women. That’s not said in any way to disparage their painful experiences, but only to put the program’s intent into some perspective because it was, in effect, castigating an entire industry on this meager base. Throughout the telecast, NOW made it appear that all insurance companies were guilty of cheating claimants by failing to make good on policy promises, primarily regarding replacement cost on destroyed homes. However, only State Farm and Allstate were highlighted as consistently and intentionally offering settlements far below what the policy called for. The Bloomberg article is far more comprehensive, citing some other companies while indicting the business as a whole. Both the Bloomberg article and the NOW presentation charge the industry with making obscene profits on the backs of the virtually helpless insuring public and a benign state regulatory structure. Bulwarking their premise about the fraudulent activities of the insurers are quotes from Robert Hunter, a former Texas insurance commissioner and currently insurance director of the Washington, D.C.-based Consumer Federation of America, and John Garamendi, a former California insurance commissioner and now the state’s lieutenant governor. It is important to point out that neither NOW nor Bloomberg disparaged insurance brokers or agents in any way as co-conspirators of the “despicable” insurers claims trickery, except for a reference in the Bloomberg article to legal action against agents for failing to offer appropriate replacement cost limits to some homeowners insureds. Nevertheless, the condemnatory attacks send a cautionary signal that, to avoid any possible future accusations or litigation, agents and brokers should make every effort to give their insureds the opportunity to fully understand and protect their property and liability exposures. Rebuttals offered Both the Bloomberg article and NOW, following standard procedures, included some rebuttal views. Replying to a request from NOW preceding the broadcast, both Allstate and State Farm responded. In its statement, Allstate said there was an implication in the request that the program would “repeat a number of tired, unsubstantiated and discredited allegations by the trial lawyers who have an economic interest in fostering conflict between consumers and their insurance companies.” On camera for NOW was Robert P. Hartwig, Ph.D, CPCU, president of the Insurance Information Institute (I.I.I.). Dr. Hartwig’s comments sought to set the record straight on the charges of excessive insurance company profits. I.I.I. told me the NOW reporters and a camera crew were at the I.I.I. offices for about eight hours but came up with only about a one-minute segment with Dr. Hartwig’s rebuttal. Cary Schneider, I.I.I.’s executive vice president, told me that the NOW broadcast apparently got little attention in the nation’s press. That is probably so, but its adverse effect on the industry’s integrity should not be overlooked. In a lengthy letter dated August 15, 2007, to Bloomberg Markets Editor Ronald Henkoff, Dr. Hartwig challenged the article as a “biased, inaccurate and intellectually shabby story.” Dr. Hartwig was highly critical of the article’s distortion of facts, and he provided data to refute the financial content. (In his letter he requested a meeting with the magazine editor. This had not taken place near the end of August, according to Schneider of I.I.I.) Dr. Hartwig also issued a strong rebuke that should concern the industry as a whole, and particularly agents and brokers. He said that the article (and that would include the NOW broadcast) “leaves our customers with the false impression that insurers seek to avoid their obligations at their time of greatest need. Such untruths, utterly unsupported by the facts, are not only a disservice to the public and your readership but are an insult to the millions of insurance industry employees who work hard every day to help people recover from disaster whenever and wherever it occurs.” Dr. Hartwig did not specifically point to agents and brokers, but in fact they are the closest to the policyholder, negotiating policy terms and offering their expertise on coverage needs. Up-front action Given the vastness and complexity of the insurance business and of life itself, and the intricacies of policy contract language and its interpreta-tion, it is inevitable that disputes, misunderstandings, overreaching and resulting litigation will occur, driven by unhappiness and even rage over outcomes. It’s unavoidable. The key to keeping these undesirable events to a minimum is getting the coverage right going in and making the insured aware of what the policy really means in terms of ultimate reimbursement in the event of a claim. Everyone knows—especially when it comes to homeowners—that achieving such a balance is a challenging task. Some insureds do not want to be burdened with responding to such questions as: “What will it cost to replace your home if it is severely damaged? What about the value of contents, and do you have receipts or other evidence of ownership and possession? Where do you keep such documents?” When the question of premium comes up, does the insured want actual cash value or replacement cost coverage? The average insured cannot envision the vast difference in recovery when a loss occurs, and it is the agent or broker’s responsibility to explain the difference clearly. A survey conducted for the National Association of Insurance Commissioners (NAIC) in May of this year found that 68% of the 1,000 people polled believed that an automobile damaged or stolen from the premises was covered by their homeowners policy. There was almost abysmal ignorance about actual cash value as contrasted with replacement cost coverage. NAIC quoted New York City broker Ron Tepperman, who said that many home owners do not realize that certain valuables may be significantly under-insured under a standard policy. He said many people mistakenly think they are fully covered for jewelry, antiques, and stamp and coin collections. He emphasized what every broker and agent knows but may not explain adequately to insureds and prospective insureds: that most homeowners policies provide only limited protection, which may be totally inadequate, but they never find out about it until after a loss. Such findings made me wonder whether independent producers are establishing solid, ongoing relationships with insureds. I would hate to see articles in newspapers, magazines or electronic media taking brokers and agents to task for failing to get insureds appropriately covered in the face of the violent weather patterns we are encountering. It is clear that, legally, agents and brokers are obliged to provide coverage only when it is sought by customers; they are not called on to grab people by the collar to get them to protect themselves. But for their own customers, agents and brokers should explain what the exposures are and why insureds should be prepared. Furthermore, government and the industry need to come to grips with the combination of flood and wind destruction so that the Hurricane Katrina loss dilemma does not happen again. Unfortunately, time is not on our side, and official forward motion is becalmed. * The author |
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