Consumer education still needed

An education isn’t how much you have committed to memory, or even how much you know. It’s being able to differentiate between what you do know and what you don’t.– Anatole France (1844 – 1924)

Apparently, when it comes to insurance, U.S. consumers don’t know what they don’t know. A recent survey conducted by the National Association of Insurance Commissioners shows that despite the industry’s best educational efforts, the public still has little idea about what’s covered and what’s not in the standard homeowners policy.

The NAIC found that a large percentage of U.S. homeowners mistakenly believe that standard homeowners insurance protects them from a wide array of perils that are typically not covered, such as floods, earthquakes, termites and mold.

Despite extensive media coverage of Hurricane Katrina victims whose claims were denied due to lack of flood insurance, the NAIC survey found that 33 percent of U.S. heads of household, who own a home and have homeowners insurance, incorrectly believe flood damages would be covered by a standard homeowners policy.

The NAIC encourages the industry to continue to help educate the public.

“As we enter the 2007 hurricane season, we strongly encourage consumers in flood–prone areas to check whether they are properly covered,” said Walter Bell, NAIC president and Alabama commissioner.

Some of the NAIC survey results revealed other homeowner misunderstandings relating to common loss situations, such as:

• 68 percent think vehicles such as cars, boats and motorcycles stolen from or damaged on their property are covered.
• 51 percent think damages from a break in the water line on their property supplying water to their home are covered.
• 37 percent think damages due to a break in the sewer line on their property that connects to their municipal sewer system are covered.
• 35 percent think damages from earthquakes are covered.
• 34 percent think damages from mold are covered.
• 31 percent think damages from termites or other infestation are covered.
• 22 percent think pets stolen from or injured on their property are covered.

Surprising misconceptions
The NAIC survey revealed another type of potential consumer misunderstanding. Twenty–four percent of respondents indicated their policies insured their homes for the actual cash value, while 64 percent said their policies covered the replacement cost. Another 12 percent said they did not know which type of coverage — actual cash value or replacement cost — they purchased.

“It’s important that consumers understand this distinction,” said Bell. “In the event of a covered loss, an actual cash value payout could be thousands of dollars lower than a benefit calculated at the replacement cost.”

The NAIC survey also uncovered a growing concern among homeowners about being sued. Twenty-eight percent of respondents reported they were more concerned today than they were five years ago about being the target of a lawsuit.