Many homeowners ask me what the best insurance is to purchase for their home. I often tell them to look at insurance from Chubb, AMICA, or Lexington Preferred because we sue them very infrequently, and those insurance companies tend to pay claims looking out for their policyholders rather than denying claims trying to make a profit after the loss occurs. Regarding Chubb, I published Chubb Calls Competitors Cheap And Unfair 16 years ago, noting how Chubb advertised that its competitors failed to pay claims properly:

We rarely find ourselves going after Chubb for underpaid policyholder claims because they sell a great insurance product and usually pay claims. If all insurance companies sold a product that was drafted with full replacement coverage and fewer exclusions and trained their claims adjusters to look for ways to pay claims, our law firm would be broke.

The Rutgers Center for Risk and Responsibility at Rutgers Law School just published a study, Helping Homeowners Buy Insurance: Rating the States,1 that graded the state insurance departments on whether they are providing basic information to policyholders about the homeowners insurance policy products available for purchase. The report noted:

Homeowners need information about three things when shopping for insurance:

  • what the policy covers,
  • its price, and
  • the quality of the company offering it.

The key findings of the report concluded that most departments of insurance do an inadequate job of protecting consumers so they can determine this information before purchasing their insurance:

  • No state received a five-star ranking because no state makes claims payment information available to consumers.
  • Only six states (California, Maine, Missouri, Nevada, Oklahoma, and Texas) make homeowners insurance policy forms available online. Only two of those states (California and Texas) provide online summaries of the policies.
  • About a dozen states provide a form that consumers can use to compare policy terms on their own.
  • About a dozen states provide premium comparisons online.
  • About twenty states provide data on complaints filed against insurance companies.
  • Many department websites are poorly designed, making it hard for homeowners to find important information.

The details of the findings are significant:

State insurance departments should post on the department’s website the homeowners insurance policies offered by all insurers in the state, or at least the largest insurers.

Homeowners insurance policies vary widely among companies in what things and risks they cover—and don’t cover—and what they pay for losses. Many people only discover the limitations of their coverage when they have a claim and find they don’t have adequate coverage.

The full terms of a homeowners insurance policy determine what the policy covers. But most insurers refuse to make policies available to homeowners shopping for insurance. The present system for policy filing, provided by the National Association of Insurance Commissioners, is confusing, opaque, and incomplete. Therefore, complete policies are generally unavailable to consumers before they buy.

Although few homeowners would read or be able to evaluate homeowners insurance policies, making full policies easily available would be of considerable benefit to them because of information intermediaries. Consumer Reports can easily acquire dishwashers to test and rate simply by going out in the marketplace and buying them. CR and similar intermediaries, whether nonprofit or commercial, cannot acquire homeowners insurance policies as easily. If they could acquire policies, they would be able to provide the same type of accessible information about coverage as they provide for important features of other consumer products.

State insurance departments should develop a standard form summary of homeowners insurance coverage, and then:

  • Make the form available to consumers as a checklist to use when shopping.
  • Require companies to complete the form for each policy offered and make the completed forms available to homeowners shopping for insurance and on renewal.
  • Post the companies’ completed forms on the department’s website.

For consumers, too much information can be as bad as too little. Information that is accurate and useful must be provided in an accessible manner. That is particularly true for complex products such as homeowners insurance.

State insurance departments should promulgate a standard form for providing key information in an understandable way. Homeowners could use the blank form to compare policies when shopping for insurance. Insurance companies also should be required to complete the form for each policy offered and to make the completed forms available to shoppers and to policyholder on renewal. Departments should publish the companies’ completed forms on the department website. These steps would make it easy for homeowners to compare coverage of different policies.”

What about an insurer’s reputation for claims payments by an insurer and complaints about claims payment? The report notes:

The strength of consumer complaint data depends first on consumers identifying wrongful behavior and then having sufficient incentives to report that behavior. The reporting rate is low, as demonstrated by surveys of disaster victims by United Policyholders. Then regulators must present the data in comprehensible form, which often is not the case.

Therefore, consumer complaint data is limited but still useful—particularly in identifying outliers—companies that have substantially more or substantially fewer complaints than average, relative to their market share.

Many insurance departments publish the data collected with a Consumer Complaint Index, showing the number of complaints relative to policies in force or premiums written or relative to complaints made against other insurers, which provides a simple measure to compare companies. All departments should do.

State insurance departments should post information about insurance companies’ record in paying claims for consumers to view and compare online information about insurance companies’ practices in paying claims for consumers to view and compare.

The report from Rutgers is significant, and Professor Jay Feinman should be congratulated for raising these issues and calling out the state insurance departments that are responsible for policyholder protection. Everybody in the insurance industry should remember that policyholders are generally unfamiliar with the product they purchase. Even if they could read the product before they purchased it, few would understand it.

For policyholders, my advice is to find the best insurance agent you can. Never be pound-wise and penny-foolish when purchasing insurance. Do not give in to purchasing insurance through an Internet questionnaire. Instead, use a human agent who will spend time with you to find out your needs, provide options, and then purchase the best insurance available with the most reputable insurance company.

Thought For The Day

People don’t buy what you do; they buy why you do it.

—Simon Sinek

1 Helping Homeowners Buy Insurance: Rating the States, Rutgers Center for Risk and Responsibility, March 2024.