Professor Jay Feinman

Gaps in Insurance coverage are an increasingly significant issue. The Rutgers Center for Risk and Responsibility and the Rutgers Law School will hold a conference on The Protection Gap in Property Insurance, on Friday, March 29. This conference will address the protection gap in residential and commercial property losses and related types of losses in the United States.

Why should consumers be worried about insurance coverage gaps? One reason is because your insurance agent may be trying to reduce the cost of your insurance hoping you will not shop with other agents for insurance based on price. “Cheap insurance” leaves huge gaps in coverage in the event of loss. Still, some agents sell on price rather than quality and some fail to warn of these costly gaps in coverage. Of course, some purchasers of insurance look to purchase the least expensive insurance and only argue about gaps after the loss occurs and the gap captures them as they fall into financial ruin. Don’t Buy or Sell Cheap Insurance!

Solutions to the property insurance gap will be explored in much greater detail at the conference. But, the conference webpage has a couple of examples:

What solutions are there for protection gaps?

. . . .

• Legislators and regulators can require information disclosures and prescribe policy terms to ensure adequate coverage. In the wake of the California wildfires, the legislature enacted a series of reforms aimed at improving consumer understanding and better coverage for homeowners.

• Insurers and intermediaries can innovate products and marketing and can reduce costs to increase availability of coverage and consumer awareness. Insurtech, on-demand insurance, and parametric insurance are being offered as solutions to protection gaps.

I recently spoke at the Oklahoma Roofers and Contractors Association Conference. In part, I discussed the issue of insurance gaps of coverage which may allow some insurers to only pay actual cash value rather than full replacement cost to parts of a damaged building. An audience member told me how horrible the Farmers Smart Plan policy was with bizarre and very anti-consumer language regarding “marring” and how little it pays for wind or hail damage compared to other insurance policies.

After reading the Smart Plan policy form, I agree it is horrible. It should be per se negligence for Farmers agents to sell it. The form does not comply with Fannie Mae or Freddie Mac minimum requirements for property insurance on a federally guaranteed mortgage. Regulators should ban the Farmers Smart Plan policy form. It is stupid to allow the Farmers Smart Plan policy and those like it to be sold. The truthful name should be the Farmers Stupid Plan policy.

Another critic of the Farmers Smart Plan form stated the following:

Farmers is a pro at marketing. As mentioned above…they seem to be investing all of their money in bringing in clients, and none in actually caring for them. Although they have great commercials, these TV spots represent nothing about how Farmers actually handles its current clients.

Farmers Insurance has been changing its policy a lot over the past few years. I have seen every variation of their policy, and with every change, it just seems to get worse.

Right now, the version of their policy being pushed on clients is called the “Next Generation” policy. It was designed to save you money…and give you less coverage. Recently, they have begun phasing the Next Generation policy out in favor of a new policy, which was recently approved.

Farmers’ newest policy is being called the “Smart Plan Home Policy.” Let me be very clear: there is NOTHING smart about this policy.

Rutgers insurance law Professor Jay Feinman has put together a fine panel to speak at this conference. I recently noted a part of Feinman’s work in How to Stop Delay, Deny, Defend.

Yours truly will be presenting a paper and speaking at this conference on the very nerdy issue of Property Insurance Coverage Gaps Caused By Mortgage and Lender Requirements. Click here to register for the conference and I encourage all to attend.

Thought For The Day

Real happiness is cheap enough, yet how dearly we pay for its counterfeit.
—Hosea Ballou