Policyholder Education: Agent or Carrier Responsibility?

Policyholder education about insurance coverage wording is a critical challenge for the property/casualty insurance industry. But who should be doing the teaching — agents or carriers?

During a recent industry meeting, a personal lines insurance industry expert suggested that agents were to blame for the fact that homeowners did not understand clauses like hurricane deductibles and the absence of flood insurance in their homeowners policies — an assertion that was hotly contested by an insurance regulator.

The exchange came during the Property/Casualty Insurance Joint Industry Forum earlier this month during a discussion of the implications of Superstorm Sandy and the actions by the governors of New York and New Jersey to eliminate the applicability of hurricane deductibles.

Brian Sullivan, editor for Risk Information Inc., who said that carriers will need to change “bad wording” of the deductible clauses of current policies going forward, also said that carriers are obligated to teach their customers exactly what the policies cover and don’t cover.

Right now, “the primary educator is the agent — the seller. The last thing the agent wants to do is spend time with the customer to say this policy is really bad; it covers almost nothing and costs you a fortune. Or let me tell you what it doesn’t cover [and] let’s talk about how you’re exposed.”

“This is not conversation that a commercial broker or a residential agent ever wants to have, or ever will have,” he asserted.

Sullivan said it is “the companies who are the recipients of the trouble” when policy language is misunderstood. Therefore “it is incumbent on you to realize that your agency force, your sales force, is not going to carry this story to the customers.”

“It’s up to you to figure out a way to communicate directly to them, which of course makes the agents mad,” he said.

“Too bad. It’s not rational to expect them to carry this story.”

Eleanor Kitzman, Commissioner for Texas Department of Insurance, who previously worked as an insurance agent, jumped to the defense of the agents and brokers. “Having sat across the desk to sell to consumers,” she related that most customers simply want to know how much the coverage is going to cost. “Their eyes glaze over when you’re talking about some of these things,” she said.

That doesn’t mean we shouldn’t be doing this, she said. Customers “do need to understand more.”

Later, when an audience participant questioned Kitzman about the potential E&O exposure to agents that don’t educate their customers, she reiterated that agents are doing their part, but customers aren’t listening. The potential to get an E&O exists “even when you do all you can do,” she said.

Noting that on the last page of an application there is often a lot of disclosure to read through, and a requirement that customers initial that they have read and understand it, she said, “These people are either speed readers or they will sign anything.”

During the session, Jeffrey Bowman, president and chief executive officer of Crawford & Co., predicted that there will be litigation on the wind vs. water question as Sandy claims are adjusted. “I think the sheer number of claims in Sandy will ultimately make that happen,” he said, adding, however, that he believes the nature of the litigation “will be more quantitative than qualitative.”

“It will be about the amount of the indemnity rather than if the indemnity is due,” he said.