Are U.S. homeowners burying their heads in the sand when it comes to their homeowner’s insurance coverage? A 2016 survey commissioned by Trusted Choice and the IIABA seems to suggest that they are. The three big conclusions from the survey results are that many homeowners have inadequate insurance coverage for their loss exposures, do not understand the coverage they do have, and lack enough personal savings to cover the uninsured costs of a disaster that may force them from their homes for a month or more.
It seems that a large portion of homeowners have very high expectations for the homeowner’s insurance policies they are purchasing, and very limited understanding of what it will actually cover and to what extent. This creates a false sense of security, which relieves the homeowner of any sense of urgency toward establishing their own savings plan to get through the uninsured or under-insured aspects of a disaster.
For example, many homeowners fail to understand the difference between replacement cost and actual cash value coverage, and blindly accept what is typically the default (and less expensive) option: actual cash value coverage. Similarly, many policies provide a limit for off-premises living expenses following a covered event, but that limit is usually only 10% of the dwelling limit. That could be woefully inadequate if a homeowner had to live elsewhere for 2-3 months after a major fire or storm damage. Lastly, flood insurance is not even considered by many homeowners who think it cannot happen to them or believe that they have no flood exposure. Last year, I wrote about the Louisiana floods which included this amazing statistic for a state that has a long history of floods: “…more than half (55%) of the state’s residents living in high-hazard flood zones did not purchase flood insurance. Even worse, 88% of those living in low-to-moderate hazard zones (which were affected by this particular flood) did not buy flood insurance.”
So what’s the problem here? Are homeowners just burying their heads in the sand, and adopting the “ignorance is bliss” approach to their most valuable asset? Or is the insurance industry not being diligent enough in our role as personal risk managers to these homeowners? I know many insurance professionals who are very dedicated to their clients and genuinely want to make sure these clients are adequately protected. But I also know that there are three harsh realities: (1) There are only 24 hours in each day, (2) there are clients who simply don’t want to know (or pay), and (3) there are a minority of insurance agents who have stopped caring, probably as a function of the first two realities.
Therein lies the rub. The limits of time and the limits of client interest/attention-span/willingness-to-pay can cause even the most dedicated insurance professional to become cynical. We’ve all had clients who don’t want to understand. It’s either too complex or too scary for them, and they mentally shutdown and hope for the best. Many Americans are taking a similar approach to their retirement savings, but that’s another story. Alternatively, some clients understand the coverage concepts and ramifications but then choose the cheaper coverage option. Better. At least they made an informed choice… or did they? Can we be sure that the client fully grasped the magnitude of the self-insured exposure they just accepted and have a plan in mind to prepare for it? The TC/IIABA survey suggests otherwise because few take that next step of establishing personal savings to get them through the disaster costs that they just decided to self-insure.
As insurance professionals, we cannot just dismiss the results of the TC/IIABA survey as the symptoms of our clients putting their heads in the sand. If they are putting their heads in the sand, it could be because we’re not doing our jobs as risk management advisors as well as we should be. Perhaps we’re being too scary or ominous in our coverage explanations. Perhaps our coverage terms are overly complicated. Perhaps we’re being too cynical or too rushed in our client interactions. My suggestion is that we take the survey results to heart, look in the mirror, and ask ourselves: How do we fix this?