I was recently asked this question.
What do you think about efforts to simplify policy language?
The answer is never as simple as it seems at first.
The simple answer is that I’m for making the insurance policy easier to read and understand, especially for the layperson.
Why insurance policies should be easier to read.
Many of our customers are reluctant customers at best. They pay for years for their auto and homeowners’ insurance. They never have a claim. They have even chosen not to claim some things and just cashflow them just so they didn’t have to deal with the hassle of filing a claim, meeting with the adjuster, negotiating the value of the claim, and finally getting the work done two years later.
It’s even worse when they pay for their insurance for years and when they finally do file a claim, the denial letter comes in and they don’t understand why the loss isn’t covered. To be fair, a properly written claim denial always includes the important policy language, but by the time they get to the policy language, that red hue that everything has taken on makes it very difficult to continue reading and their anger has shut down the part of the brain that controls reading and interpreting written language.
We must always remember that our customers are people who don’t do this for a living. They don’t care what their auto policy says about their personal property in transit. They don’t care that theft is a covered cause of loss on their homeowners’ policy unless you’re occupying a temporary residence then it’s not covered. All they really care about is that when they call us, that we respond with, “Yes, that claim is covered. Can I send you a check today?”
Some insurers and agents have created marketing materials that make the policy easy to understand and that helps, but that’s not enough. I am an advocate for making the policy easy to read and understand. Everything else in our world is trending to simplification. No one uses big words unless they are academics. I can’t convince anyone that they need to read classical literature anymore (Sidebar – You really should read the classics. They’re good for you, like broccoli.)
One last thought here, insurance policies should be easier to read because too many of my peers in the insurance world don’t understand the policy any better than the customer does. Sitting at my underwriting desk, I would get calls and emails from agents asking me simple coverage questions. OK, I thought they were simple, but that’s not the important part. It wasn’t just new agents or agents with small books of business. Agents all over would ask questions and it would seem to me that they should already know these answers. In short, they’re so hard that many of us don’t know what they actually say.
Why this is harder to do than we want it to be.
If you believe certain coverage attorneys and public adjusters, insurance policies are hard to read only because insurance companies want to make it difficult for people to understand. Hogwash.
If you believe certain insurance companies, insurance policies are hard to read only because coverage attorneys want to find coverage where no coverage was ever intended. Balderdash. The truth is somewhere in the middle.
The insurance policies that we see in front of us today have plenty of players to blame. There are enough intentional and unintentional actions to blame for these fine works of legal literary art. Keep in mind that every word in every insurance policy is scrutinized either before the policy is written or once the claims start coming in. Every word in every insurance policy has been read and reread by attorney after attorney. Some to make sure that the words communicate exactly what the insurance company means. Others find ways to make the policy communicate what they want it to communicate.
You might be wondering if we could take current policies and somehow make them easier to read. We could do that, but it’s not without problems. In taking a current policy and making changes in the language, you end up risking reinterpretation of the policy based on the changes that were made. The argument would be something like, “The company meant for this to be less specific because they changed the wording in this way.”
You might be wondering about drafting a whole new policy. This has been tried by one company. You might remember the three-page commercial package policy written by a company in Nebraska. Writing a new policy has its potential pitfalls. The biggest pitfall that I see is that in drafting a brand-new policy, you don’t know how the court will react to it. It’s also hard to anticipate all of the potential challenges that the policy might face. A new policy might get approval from regulators and that approval might include notes and clarification that specifies how coverage may apply, but none of that guarantees how a specific court or jury might apply the policy later.
Why it’s worth pursuing.
Everything that we can do as an industry to make things easier is worth trying.
Everything that helps insurance rise to a place of trust in the minds of customers is worth trying.
Everything that increases voluntary uptake of insurance products is worth trying.
In the end, it’s always worth trying to improve.
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