Tag Archives: homeowners insurance

Heads in the Sand

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?


You Get What You Pay For


One year ago this month, my hometown of Portland, Michigan was struck by a tornado.  The storm damaged several homes, businesses, and churches.  Thankfully, no one was seriously injured, and one year later the town has largely recovered.  I know of several good friends who have recently moved back into repaired and rebuilt homes and offices, thanks to the benefits provided by their insurance providers.  However, it has not been an easy road back for everyone.  I blogged about the storm and some of the recovery struggles last fall.

Some of my friends who are ecstatic to be back in their home or office have mixed feelings about the sometimes long and arduous claims process they endured to get there.  There are also a few situations where people are still not back in their damaged homes primarily because the insurance coverage they purchased was insufficient.  Two such situations involve older, shall we say “vintage,” homes whose owners understandably want the repairs done with like-kind and quality materials rather than similar or functionally equivalent materials.  The trouble is that like-kind and quality materials in vintage homes are much more expensive and not typically covered by traditional homeowners insurance policies.  Therein lies the source of conflict and the delay in getting these policyholders back in their homes.

I can certainly empathize with these policyholders who understandably assume that the insurance they bought would indemnify them by restoring them back to their pre-loss state regardless of their purchased limits and the loss settlement technicalities of the insurance contract.  Most insurance consumers fail to understand that there is no direct correlation between their home’s market value and the true cost to rebuild it.  Furthermore, the typical insurance policy provides for similar or functionally equivalent materials because that is perfectly acceptable to the vast majority of homeowners and makes the cost of the insurance policy more affordable.  For those consumers with vintage homes that they want to have restored with like-kind, quality, and workmanship, the simple truth is that it costs more to do so.  It likely requires that the consumer purchase higher limits and also loss settlement provisions that reflect this desire.  That means paying a higher premium – something most consumers resist even when all of this is explained to them.  My late father was a smart man, and he often used the phrase, “Son, you get what you pay for.”

I feel bad for my Portland brethren who are still embroiled in disputes with their insurance companies almost a year after the storm.  It’s no fun for the insurers either, as they take a black-eye in public relations even though they are abiding by the contract that was sold.  Nevertheless, the industry, and especially the agents who sold these policies, must shoulder some of the blame for not being more careful at the time of sale.  I am not going to name names here, but agents who become “order-takers” rather than personal risk advisers to their clients are doing their clients and themselves no favors.  I would much rather see an agent take the time to understand the nature of a client’s home, and if it’s vintage or has vintage elements, the implications for insurance coverage must be fully explained and proper coverage for the client’s expectations must be recommended.  Perhaps the customer is fine with losing some of the vintage charm of his/her home by replacing ornate doors and trim with contractor-grade materials because they don’t want to pay more in premiums.  The point is, that discussion must occur and the agent/personal risk adviser needs to have the client “sign-off” on such decisions.  If they want to fully restore their damaged home to its vintage charm, then they must invest the time with their agent and underwriter to obtain that level of coverage and pay for it.  “You get what you pay for,” or another apropos phrase my father often used, “There’s no such thing as a free lunch.”


Inland Marine and Macbook Computers


Inland marine is one of those insurance terms that creates considerable confusion and consternation among the majority of the population not working in the insurance industry.

Consumer: “Inland marine? Huh?  What, you mean like insurance for boats on rivers and lakes?”

Insurance Agent:  “Well, no.  I’m talking about property that floats around like portable equipment and tools and such.”

Consumer:  “So only property that floats in the water of a lake or river?”

Insurance Agent:  “No, it doesn’t have to literally float in water.  In fact, it has nothing to do with water.”

Consumer:  “So ‘marine’ has nothing to do with water?”

Insurance Agent:  “Not in this case, because we’re talking about inland marine insurance here.”

Consumer:  “You insurance people are strange.”

The inland marine terminology harkens back to the early days of insurance when most of the insurance protection was for seagoing ships and cargo shipments.  Marine insurance.  Then people became interested in insuring property moving about on dry land, so naturally the insurance professionals of the day took the common insurance term of the day – marine – and added “inland” in front of it.  Voila.

Inland marine insurance is actually a very common commercial insurance coverage that provides insurance protection for wide and varied risks including the likes of contractors equipment, builders risk, transit, and electronic data processing equipment.  What many insurance consumers fail to realize is that inland marine insurance has useful application for their personal risks.  Case in point – my college student daughter’s Macbook computer.

A typical homeowners insurance policy may have some coverage for electronic equipment such as computers, but any coverage that exists is limited in terms of covered causes of loss, dollar amounts covered (i.e., sub-limits), and is subject to deductibles.  This typical coverage does not suit a family of multiple notebook computers, which are portable and subject to a variety of hazards including accidental breakage or mysterious disappearance.  The solution?  Have your homeowners insurance agent add these high value specific items of property to an inland marine coverage endorsement on the policy.  There will be an additional premium charge, but it can be well worth it for the added coverage.  With each computer (or smartphone or tablet) specifically scheduled (that’s another insurance term – I could just say “listed”) on the insurance policy, each now has its own insurance limit, broader coverage, and often no deductible.

My daughter called me last weekend with her tale of woe.  In the icy and snowy state of Wyoming (Go UW Cowboys!), she fell on the sidewalk outside her apartment building with her Macbook in her arms.  Despite her best efforts to protect the Macbook from the fall, it suffered a cracked screen and some unknown internal damage that now causes it to spontaneously power itself off at random intervals.  I contacted my homeowners insurance agent, gave her the serial number of the broken Macbook to verify that it was indeed one of the computers scheduled on my policy, and explained the incident.  She filed the claim and as of this morning the insurance company is issuing a check to cover a replacement of the Macbook.  No muss, no fuss.  No Macbooks floating on an inland river or lake.  Just insurance coverage properly matched to the loss exposures of one family with a fleet of Macbooks, half of which are in the hands of clumsy college-age daughters.