No Transparency? You Can Beat It!

By Author: Norris Rios
Total Articles: 568
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Insurers might try to tell you that all homeowners insurance policies are basically the same. They want to be able to say, "Look, our price is lower than theirs. You're getting the same thing really, so just go with the lower price." The reality is a bit different from the rhetoric, however. Flood coverage for one company does not mean the same thing as flood coverage for another.

That much is attested to by Daniel Schwarcz in his eyebrow-raising "The Need for Insurance Policy Transparency", which points out that shopping for homeowners insurance can be a pretty horrible experience when no two policies are even basically the same and you are trying to compare costs.

The abstract follows:

This Article empirically debunks the common claim that homeowners insurance policies do not vary across different insurance carriers. It demonstrates that different carriers' homeowners policies differ radically with respect to numerous important coverage provisions. It also reports that a substantial majority of these deviations produce decreases in the amount of coverage, though some deviations increase coverage. Additionally, ...
... the Article reviews the shocking absence of any mechanisms by which even informed and vigilant consumers could comparison shop among carriers on the basis of differences in coverage. It closes by noting that state insurance regulators must act aggressively to remedy this lack of transparency in homeowners insurance markets and to study more broadly whether this problem extends to other personal lines of coverage.

If you want to read the newest version of the argument, get the October 25th issue of Underwriting Magazine, where the author refutes the insurance industry's response.

The industry claims that all existing policies provide a base amount of coverages. While nobody in this debate has called for all policies to be completely standardized, it has been suggested that the insurance industry should at least agree upon provisions to "have a minimum floor for personal for personal lines policies," which would guarantee the essential coverage that a paying customer needs to continue his or her way of life in the event of a catastrophe.

Some of the more powerful points from Schwarcz's earlier essay are:

1. Insurers only allow their policy forms to be seen by consumers after they have bought coverage.
2. Regulators don't even have access to the aforementioned complete forms.
3. Even the insurance agents believe the myth that all homeowners forms are basically identical.
As a consumer, the odds are stacked against you when it comes to home insurance.

So how can you beat it?

Careful review your existing policy. You can always find an expert to help you review it. When using home insurance quotes to shop, make sure you have in mind exactly what coverages you want in your policy. Then, make sure the policies that you are looking at guarantee those.

Also make sure to check consumer reviews. It these companies have swindled anybody or withheld information that you should know before you sign a contract, consumer reviews are a good place to look for information.

While consumers will have to wait a while for industry transparency, you can't wait for home insurance.