Eye on Texas Blog

Top 10 Insurance Myths

Via Texas WatchPosted April 4, 2012

Insurance companies spend up to $700 million dollars every year pummeling us with ads. The ad men on Madison Avenue spin tales about being in “good hands” with insurance companies that are “like a good neighbor” just wanting to “get you back where you belong.”

Sadly, for many insurance customers, these advertising pitches just don’t jibe with their real-life experiences. So, we are debunking some of the common myths about the insurance industry.

Take minute to read the myths (no doubt you’ve heard them), and then read the reality:

Myth #1: “You’re Covered”
Texans think that we’re paying our hard-earned dollars for peace of mind. But the ugly truth is that deregulation has allowed insurance companies to carve up their policies over the last decade. We’re paying sky-high rates for junk policies that do not cover many of the perils you would expect. Read More…

Myth #2: “Insurance Companies Always Pay Claims Fully & Promptly”
Texans uphold our end of the bargain by paying our hard-earned dollars for premiums, and we expect that insurers will uphold their end by paying our claims if tragedy strikes. Too often, however, insurers betray the trust of vulnerable policyholders and have turned claims into an additional profit center by using “delay, deny, and defend” tactics. Read More…

Myth #3: “Texas Just Needs More Insurance Companies.”
The insurance industry tells legislators that further deregulation will bring more companies into the market, which would in turn create more competition and choices for consumers, lowering prices. In reality, all the major companies that could impact the market are already here, and deregulation only leaves consumers with less protection and no meaningful competition. Read More…

Myth #4: “Your Insurance Company is Loyal to You.”
We’ve all heard the jingle: “Like a good neighbor, State Farm is there.” For over 11,000 homeowners policyholders in five counties along the Texas coast, nothing could be further from the truth. The state’s largest carrier has made the decision to pull up stakes and abandon these customers, many of them long-time and loyal, without even giving a rationale for their abrupt actions. Read More…

Myth #5: “Bad Weather Means Insurance Rates Must Rise.”
Insurance companies love to demand higher rates after storms. Their excuse? Storms cost us money so we, of course, need more money! But their slick spin is nothing more than a fallacy that plays on fears and misrepresents the very fundamentals of insurance. Insurance ratemaking is prospective, meaning policyholders have already paid for this year’s storm through their premiums. To make them pay again, next year, through yet another rate hike, is double dipping on the part of the insurance carrier and nothing more than a forced bail out. Read More…

Myth #6: “Mandatory Arbitration Helps Policyholders.”
Pre-dispute Binding Mandatory Arbitration (PBMA) is a secret, unappealable process that is frequently more costly than the traditional legal process and is biased against individuals. Insurance companies routinely bury PBMA clauses deep in the fine print of insurance policies, eliminating the ability of policyholders to exercise their basic legal rights when their insurance company tries to take advantage of them by unfairly denying, delaying, or underpaying their valid claim. Read More…

Myth #7: “Protecting Policyholder Rights Raises Rates.”
When insurance companies say that our civil justice system drives up insurance rates, what they’d really have you believe is that we can’t afford our Constitution. The truth is that they view the Bill of Rights as a bothersome barrier to their bottom line. If they were truly interested in lowering costs for the public, they would support sensible efforts to regulate rates for their mandated products, sell policies that provide meaningful coverage, and support efforts to punish those who cheat claimants through strong-arm tactics. Read More…

Myth #8: “Giving Insurance Companies What They Want Is Good For Consumers.”
A decade ago, lawmakers deregulated the marketplace, embracing the insurance industry’s theory that less oversight would bring about competition amongst carriers and lower prices for consumers. That industry-centered theory has been tested, and the data show it has failed. Now, our insurance commissioner is throwing up her hands and saying she has no options to bring about immediate relief. Instead, she parrots industry-approved “reforms” that put the burden on consumers. Read More…

Myth #9: “Insurance Companies Are People Too.”
There is a quaint notion that insurance companies make sound decisions based on personal interactions with policyholders. But, big insurance companies have become highly automated, able to rely on digital profiling to underwrite and set rates, proprietary databases to compile customer information, and black box logarithms to underpay claims. Read More…

Myth #10: “Insurance Shopping is Easy.”
Lobbyists and regulators repeatedly say that if policyholders would just “shop the market” everything would be alright. Implicit is that shopping for insurance is a simple proposition and consumers are just lazy. Really they’re saying it’s your fault. As if you like paying too much and getting too little. Read More…

TAKE ACTION – Tell Your Legislators Not to Fall for Insurance Myths.

Research & Reports
Research & Reports

The Texas Watch Foundation, a non-partisan 501(c)(3) organization, conducts research and public education activities on consumer law, consumer protection and civil justice issues. Read More »

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Court Watch

Court Watch, a program of the Foundation, documents the role and impact of the Texas civil court system on Texas families and Texas public policy. Read More »