Once again, the DOI has failed to solve a problem by simply creating more regulations and placing a greater burden on agents.
The issue: “Underinsurance” is done by certain agents and carriers to remain competitive in the property market.
The failure of the department to force all carriers to use a single Insurance to Value tool creates more confusion for agents and consumers. An agent can perform 6 different ITV’s in various carrier and vendor systems and have a 25 to 30% deviation in Replacement Cost using the exact same data.
The funny thing is, the cost of insurance is what concerns the consumer. So they end up buying a policy with inadequate coverage and noone is harmed till the loss occurs.
The fact is: There is one house, one fire, and one cost to rebuild, regardless of the carrier. Although, there may be differences is contractor costs, the basic calculation should be standardized and a single figure should used at the time the policy is written and with subsequent renewals (REGARDLESS OF THE CARRIER).
So if the Deparment wants to solve the problem, it must require all carriers to use the same figure in determining the Dwelling Limit and stop focusing on rates so much. Then and only then will consumers be able to feel confident that there is competiton for their business.
By the way, the Department may want to check with the CSLB for a good source of cost breakdowns. What a novel idea: Once Consumer Protection Agency working with another.
Right, a 3-hour course requirement solves the problem. Thanks Steve.
I agree with the need for something more uniform but what happens if the model picked to use fails to predict the full future cost? At the bottom, the consumer needs to be held responsible for choices they make at point of sale. This isn’t all the fault of the companies or their agents.
The DOI can then take the heat for the lack of a proper calculation model since it has been their goal all along to “PROTECT THE CONSUMER” from his/her own ignorance in making sound decisions. Of course as consumers we then get to pay higher taxes or premiums to bail out idiots either way. At least the confusion would be minimized up front.
Have you ever had a case where the insurance company or agent reduced the amount of coverage the insured requested to meet replacement cost then suffered a total loss and found there was not enough to replace the coverage? If so did the company pay the difference or did the insured pursue an E&O claim against you?
In my experience, most replacement cost estimators are computerized and you just need to fill in the answers to questions. Agents should not be expected to be educated as a building contractor in a three hour course. I sold construction material to contractors for several years and know that if you want an accurate building estimate you need to intimately know the plans, material specifications and labor cost – the last two, in my experience, will change from day to day.
I agree with Good Hands, the bottom line is the consumer needs to be held responsible for the choices they make. Poizner must have a relative that gives these classes.
rebuild quotes often vary by 100% from one contractor to the next depending on the contractor, location, materials, time frame, permits etc etc etc… plus constantly changing building codes, regulations and fees dont help.
If the DOI was really interested in lowering friction between insurers and insureds they’d……
A: host their own web based home valuation tool.
B: Seek legislation preventing lawsuits against insurers for underinsurance to motivate insureds to insure to full value.
C: Seek legislation to Waive permit & inspection fees and regulation changes on existing house & building rebuilds.
Right now the biggest variable in rebuilding is government, which is a financial wildcard, nobody ever knows what they’re going to ask for-except more money.
More variables=less predictability and more costs.
I get so tired of IBA West waving the flag like they are heroes when they have just gone against the rest of the industry and their own membership’s wishes. Instead of pushing for the DOI to take responsibility for having a standardized estimator available for agents and the public to use and pushing to have the consumer responsible for the coverage they choose to purchase, they once again opt for more regulations on the agents. More work, more disclosures, more forms to complete the sales process but the same pay. When are they going to learn that the dishonest agents are going to game the system no matter what? You can’t legislate morality. This whole thing is just for show so Poizner can say they have accomplished something. They have done nothing to educate or protect the consumer, just added more work to the sales process. I can’t get my customers to read through the current application pages prior to signing them. They don’t want to sit for 20 minutes reading through 15-25 pages of legal documents prior to signing. So why require more documents that don’t solve the problem! Shame on IBA West for taking credit for this debacle and on the other agent groups for not demanding more from the DOI.
The main problem we can all agree on is that there needs to be a standard replacement cost model approved by each DOI for agents to use. The only problem will be if the agent incorrectly answers the RCV questions. That will be an E&O.
Allstate – The Good Hands People – has history with this problem. I read an article in the IJ about ten years ago where an Allstate agent in California greatly underestimated the RCV of every home policy he sold in a housing addition near his office. He was very successful because his prices beat the competition. However, when a wildfire ravaged the neighborhood none of his customers had enough insurance to rebuild. The agent was fined $350,000, his license suspended for 10 years and Allstate was fined $9.5M. That should get any agent’s attention that the DOI takes this matter seriously.
Changing consumer needs! Many homeowners needs have changed since they bought their home. If destroyed, they would not need to rebuild a home as large. A few carriers have RCV endorsements that allow an insured to go below the 80% coinsurance clause because of this fact. However, the carrier should be required to have the insured sign a disclosure statement that they recognize what they are doing by insuring for less then RCV.
Once again, the DOI has failed to solve a problem by simply creating more regulations and placing a greater burden on agents.
The issue: “Underinsurance” is done by certain agents and carriers to remain competitive in the property market.
The failure of the department to force all carriers to use a single Insurance to Value tool creates more confusion for agents and consumers. An agent can perform 6 different ITV’s in various carrier and vendor systems and have a 25 to 30% deviation in Replacement Cost using the exact same data.
The funny thing is, the cost of insurance is what concerns the consumer. So they end up buying a policy with inadequate coverage and noone is harmed till the loss occurs.
The fact is: There is one house, one fire, and one cost to rebuild, regardless of the carrier. Although, there may be differences is contractor costs, the basic calculation should be standardized and a single figure should used at the time the policy is written and with subsequent renewals (REGARDLESS OF THE CARRIER).
So if the Deparment wants to solve the problem, it must require all carriers to use the same figure in determining the Dwelling Limit and stop focusing on rates so much. Then and only then will consumers be able to feel confident that there is competiton for their business.
By the way, the Department may want to check with the CSLB for a good source of cost breakdowns. What a novel idea: Once Consumer Protection Agency working with another.
Good points.
Right, a 3-hour course requirement solves the problem. Thanks Steve.
I agree with the need for something more uniform but what happens if the model picked to use fails to predict the full future cost? At the bottom, the consumer needs to be held responsible for choices they make at point of sale. This isn’t all the fault of the companies or their agents.
The DOI can then take the heat for the lack of a proper calculation model since it has been their goal all along to “PROTECT THE CONSUMER” from his/her own ignorance in making sound decisions. Of course as consumers we then get to pay higher taxes or premiums to bail out idiots either way. At least the confusion would be minimized up front.
Have you ever had a case where the insurance company or agent reduced the amount of coverage the insured requested to meet replacement cost then suffered a total loss and found there was not enough to replace the coverage? If so did the company pay the difference or did the insured pursue an E&O claim against you?
In my experience, most replacement cost estimators are computerized and you just need to fill in the answers to questions. Agents should not be expected to be educated as a building contractor in a three hour course. I sold construction material to contractors for several years and know that if you want an accurate building estimate you need to intimately know the plans, material specifications and labor cost – the last two, in my experience, will change from day to day.
I agree with Good Hands, the bottom line is the consumer needs to be held responsible for the choices they make. Poizner must have a relative that gives these classes.
rebuild quotes often vary by 100% from one contractor to the next depending on the contractor, location, materials, time frame, permits etc etc etc… plus constantly changing building codes, regulations and fees dont help.
If the DOI was really interested in lowering friction between insurers and insureds they’d……
A: host their own web based home valuation tool.
B: Seek legislation preventing lawsuits against insurers for underinsurance to motivate insureds to insure to full value.
C: Seek legislation to Waive permit & inspection fees and regulation changes on existing house & building rebuilds.
Right now the biggest variable in rebuilding is government, which is a financial wildcard, nobody ever knows what they’re going to ask for-except more money.
More variables=less predictability and more costs.
What this new regulation has done is; like my father used to say; “they have raised your shirt and lowered your pants!”
I get so tired of IBA West waving the flag like they are heroes when they have just gone against the rest of the industry and their own membership’s wishes. Instead of pushing for the DOI to take responsibility for having a standardized estimator available for agents and the public to use and pushing to have the consumer responsible for the coverage they choose to purchase, they once again opt for more regulations on the agents. More work, more disclosures, more forms to complete the sales process but the same pay. When are they going to learn that the dishonest agents are going to game the system no matter what? You can’t legislate morality. This whole thing is just for show so Poizner can say they have accomplished something. They have done nothing to educate or protect the consumer, just added more work to the sales process. I can’t get my customers to read through the current application pages prior to signing them. They don’t want to sit for 20 minutes reading through 15-25 pages of legal documents prior to signing. So why require more documents that don’t solve the problem! Shame on IBA West for taking credit for this debacle and on the other agent groups for not demanding more from the DOI.
The main problem we can all agree on is that there needs to be a standard replacement cost model approved by each DOI for agents to use. The only problem will be if the agent incorrectly answers the RCV questions. That will be an E&O.
Allstate – The Good Hands People – has history with this problem. I read an article in the IJ about ten years ago where an Allstate agent in California greatly underestimated the RCV of every home policy he sold in a housing addition near his office. He was very successful because his prices beat the competition. However, when a wildfire ravaged the neighborhood none of his customers had enough insurance to rebuild. The agent was fined $350,000, his license suspended for 10 years and Allstate was fined $9.5M. That should get any agent’s attention that the DOI takes this matter seriously.
Changing consumer needs! Many homeowners needs have changed since they bought their home. If destroyed, they would not need to rebuild a home as large. A few carriers have RCV endorsements that allow an insured to go below the 80% coinsurance clause because of this fact. However, the carrier should be required to have the insured sign a disclosure statement that they recognize what they are doing by insuring for less then RCV.