View this article online: https://www.insurancejournal.com/magazines/mag-features/2019/03/18/520500.htm
Years ago, insurance consumer advocates in the states were most often focused on getting consumers access to insurance at fair prices. They still advocate on those issues, of course, but today some are looking beyond these traditional concerns.
Property/casualty insurance consumer advocates in some states are tackling data and technology, improved consumer education and even energy projects as they relate to insurance. In some cases, today’s challenges are the consequences of past success in creating more options for consumers and now wanting to make sure that they understand their choices. In others, they reflect efforts to protect consumers in an age of costly catastrophes and ubiquitous data use.
The use by property/casualty insurers of big data and the complex algorithms to set pricing, resolve claims, market their products and even combat fraud is an economic justice concern for longtime consumer advocate Birny Birnbaum. It’s one that insurance regulators have not yet successfully addressed, he says.
Birnbaum, executive director of the Austin, Texas-based Center for Economic Justice, a non-profit dedicated to advocating for low-income and minority consumers, says that to compound the problem, insurance regulators have not addressed the challenges that big data and complex algorithms pose in terms of consumer protection.
“In the absence of meaningful data on who is writing what products in what locations at what prices, there is no meaningful way to evaluate insurance availability and affordability. However, we know that the growth of climate-change driven weather-related events will tax public and private insurance mechanism,” Birnbaum says.
Birnbaum has praise for Texas Insurance Commissioner Ken Sullivan’s “commitment and actions to improving consumer information and disclosure.” However, overall, he says, there is still a lot of work for states to do.
“There is tremendous opportunity to improve consumer information about insurance products and insurer market performance to promote more competitive markets,” he said.
Policy Customization
One area of opportunity is improving consumers’ understanding of the insurance coverages they need and the coverages their policies provide, according to Melissa Hamilton, who is immersed in insurance consumer issues in Texas as public counsel with the Texas Office of Public Insurance Counsel (OPIC), a state agency tasked with representing consumers in insurance matters.
Over the years, the P/C insurance industry in Texas and other states has been granted more flexibility in writing policies, which in turn has led to more policy customization. Hamilton says this is presenting a challenge to consumers.
“Consumers will most likely have to customize their policy through endorsements to best fit their insurance needs. They will also have to understand the many different coverages offered for one line of insurance,” Hamilton told Insurance Journal.
As a result of the expanding variety of policy options available to consumers, OPIC has made consumer education as a primary focus.
“The Texas insurance market is generally competitive at most price points for most lines of insurance,” Hamilton says. But with competition comes diversity of choices, and her concern is that some consumers may not be adept at shopping for the kinds of insurance most suitable to their needs at the price they can afford.
“Many consumers shop based solely on price. Insurance ads and other marketing tools also tend to focus on price. While price is certainly an important consideration, price is not the only, and potentially not the most important, consideration when shopping for insurance,” she says.
To help consumers determine and select the kinds of insurance for their needs, Hamilton’s agency has developed resources such as shopping guides and insurance checklists for consumers to use when shopping for home and auto coverages. “When consumers have the right information and know what questions to ask, they can navigate the insurance marketplace more easily and hopefully make the market work for them,” she says.
Insurers, too, can help potential policyholders by using plain language in insurance policies, Hamilton says. That’s an area of opportunity for insurance companies to not only enhance the consumer experience but also improve carrier efficiency and accuracy in policy writing.
“Reducing technical and legal jargon, and long policy contracts with multiple endorsements, would significantly improve property and casualty insurance products,” Hamilton says.
The Florida Association for Insurance Reform (FAIR) has a lot on its plate, including curbing costly abuse in the property insurance claims process and reducing inefficiencies in workers’ compensation, but this same issue of consumers’ awareness of their insurance needs is also a concern.
FAIR President Jay Neal says there is an inverse relationship between the availability and affordability of insurance in Florida.
“Broad coverage can be found in most lines of insurance but at higher actuarial indicated rates. Consequently, price sensitive insureds may opt for diminished coverages in exchange for reduced premiums. Greater education is needed to highlight the consumer risk exposures and the value of narrowing their insurance protection gaps,” according to the Florida leader.
At the same time, Neal believes the Florida insurance market in particular ranks high when it comes to competition and for its “innovative product offerings” including private flood coverage.
In the area of data privacy, California consumer advocates are watching attempts to amend what is already the nation’s most far-reaching data privacy law that was passed in 2018 and is set to go into effect in 2020. The law currently enables a limited private right of action. But new proposals would give consumers even more power to sue corporations, including insurers, for mishandling personal data.
Companies that collect personal information should be paying close attention, according to Anne Kelley, a partner with Newmeyer & Dillion, who practices in insurance coverage matters.
“It would really open the doors for litigation under the CCPA,” Kelley told Insurance Journal.
Pipelines
Some advocates are trying to look ahead to the effects certain energy and climate-related developments might have on insurance.
In Virginia, advocates are raising concerns about two interstate gas pipelines, one that is under construction and one that has yet to start construction. The Atlantic Coast Pipeline is aimed at strengthening the energy security of the Mid-Atlantic region, according to the project’s website. The Mountain Valley Pipeline will be a natural gas pipeline spanning approximately more than 300 miles from northwestern West Virginia to southern Virginia.
“Since the high-pressure pipelines may go into service in 2019, the property insurance challenges will start to appear,” maintains Irene Leech, president of the Virginia Citizens Consumer Council.
Specifically, Leech’s group is worried that after the pipelines are installed near homes in Virginia, they could impact the cost of homeowners’ insurance in those areas.
However, a spokesperson for the Virginia State Corporation Commission’s Bureau of Insurance told Insurance Journal the pipelines themselves should not change Virginia’s risk assessment by insurance underwriters. The department noted that other natural gas and hazardous liquid pipelines already cross Virginia and are subject to “strict federal regulations regarding pipeline safety.”
Leech said her group is also watching what is happening to the cost of homeowners’ insurance for Virginians on the coast.
The state says the introduction of hurricane and wind deductibles has improved availability of insurance for coastal homes, although premiums reman priced based on the risk of being near the water.
Wildfires
For consumer advocates in California, one issue has clearly emerged as a priority. Increasingly severe California wildfires are a threat to the state as a whole. Back-to-back historic wildfire seasons have caused billions of dollars in insured losses. Consumer advocates note that homeowners’ insurance is now difficult to obtain in wildfire prone areas, and there’s an imminent threat of rate hikes.
For Richard Holober, executive director of the Consumer Federation of California, this is his top priority for the year: “Making sure that insurance industry honors claims of victims of wildfires and that the Department of Insurance takes a long-term view in rate setting, instead of allowing the industry to raise homeowners’ rates unreasonably.”
The fires could also cripple the state’s utility giants, whose practices and faulty equipment have been pointed to as potential causes of some of the massive blazes. Pacific Gas & Electric went into bankruptcy in the face of billions of dollars in potential labilities from those seeking compensation for the disasters.
Holober wants to make sure PG&E doesn’t avoid its liabilities, adding that his other priority as a consumer advocate is “guarding against utility industry efforts to evade liability and shift costs, if held responsible for causing fires.”
TradItional Issue
There are, of course, state advocates still focusing on the age-old consumer issues, such as auto insurance pricing and availability.
Liz Coyle, executive director of consumer group Georgia Watch, sees rising auto insurance rates as a concern and has called on the state legislature to repeal the 2008 “file-and-use” law and restore the commissioner’s authority to rein in excessive rate increases.
“We support that idea,” Coyle said. “We also will call on Commissioner [Jim] Beck as we did his predecessor to address pricing disparities that cause lower income Georgians to pay more for their policies. In 2019, we’d like to see a lot more transparency in how auto insurance rates are set.”
Helping consumers understand their insurance options and insurers’ use of big data.
Auto insurance is also a concern in Delaware, where both the Delaware Community Reinvestment Action Council (DCRAC) and the Consumer Federation of America (CFA) hope to see some changes in how auto insurance rates are determined.
“Driving records, accidents, zip code, history, credit, make even the least expensive insurance too expensive,” DCRAC has complained.
“You should not have to get a new job, get a master’s degree and buy a house, just to get a fair price for auto insurance,” CFA Director of Insurance Robert Hunter has said in arguing for changes.
A 2017 law restricted the use of some rating criteria, but advocates are pushing or more.
In Florida, FAIR wants to see the state’s personal injury protection (PIP) law replaced with mandatory bodily injury coverage. But first, Florida must legislate contractor controls and consumer protections to address assignment of benefits (AOB) abuses that are leading to higher property insurance rates for Florida residents, according to consumer and industry groups there.