You’ve heard it before. 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. Of course, this rhetoric ignores reality.
Shopping for insurance isn’t like shopping for a carton of milk. Insurance policies are complicated financial instruments – one-sided contracts written in legalese by corporate lawyers for the benefit of carriers. When you’re trying to choose one policy over another, you don’t have the equivalent of nutritional labels to help you make comparisons, and most importantly, you can’t choose to opt out because our laws and lending practices force drivers and homeowners with mortgages to carry insurance. We are captive consumers who are confronted with a dizzying and overwhelming array of complexities within this bounded universe, often leading to “analysis paralysis,” freezing us in place and crippling our ability to make easy, smart, informed decisions.
But it doesn’t have to be this way. Policymakers can take a number of simple steps to streamline this market, empowering consumers and heating up real competition between carriers.
Our organization submitted a 20-part open records request to the Texas Department of Insurance (TDI) earlier this year to understand the complete scope of the coverage provided in the Texas homeowners and personal auto markets. We are in the process of analyzing this data, but what we know now is astonishing. We asked for all of the policy forms and endorsements (or coverage modifications) that have been approved by TDI in these lines of insurance and received over 3,200 documents in response. Even accounting for duplicate documents and the fact that some carriers use the same form, you have a marketplace where homeowners and drivers are asked to evaluate an incredible number of variables. What happens instead, most of the time, is that policyholders throw up their hands and stay put, thinking it’s better to just stay with the devil they know.
The complexity of the market has real consequences for Texas families. The Office of Public Insurance Counsel (OPIC) recently conducted a study that shows that auto policyholders who have been with the same company over eight years could save over 19%, or an average of at least $194, by switching to a new company. That is real money that could be better spent putting food on the table or circulating in local economies by supporting small businesses. As for homeowners insurance, Texas leads the nation with the highest percentage of families with bare bones “basic named-perils” policies. The question is how best to enable consumers to make the switch?
Our current insurance market is dominated by just a handful of enormous companies, and what passes for competition these days tends to be reduced to which behemoth has the catchiest and slickest TV ads. If Texas lawmakers want to ramp up true competition and create a level economic playing field where insurers have to fight for business like other industries on the basis of cost, quality, and service, they can make a number of changes to empower consumers:
- Make insurance policies more transparent: To cut through the web of words spun in insurance policies, insurers should provide consumers with a checklist or table clearly explaining what is – and is not – covered in the policy, as well as any changes in premiums and coverage. The true cost of deductibles, stated in a dollar amount, should also be clearly marked on the policy. Consumers should also be able to easily obtain their current policy and all endorsements that are in effect. OPIC has stated that insurers should provide policyholders with a list of the variables impacting their premiums, an idea that policymakers should act upon.
- Improve and promote existing comparison shopping resources: OPIC has a good policy comparison tool, and the state publishes the HelpInsure.com site, but few consumers know about these resources. If industry is serious about wanting competition, they should embrace publishing notices about these comparison shopping resources in their materials.
- Give consumers the option of a standard form: To assist in comparison shopping, homeowners and personal auto insurers should offer a standard form as an option – in addition to any other forms carriers may choose to sell in the market. It simply gives consumers a benchmark choice to make meaningful comparisons and determine which company and which policy provides the best value for their hard-earned dollars.
Unless Texas policymakers embrace these commonsense, market-based reforms, the insurance market will continue in its current broken state, producing high-cost, low-coverage policies for consumers to “choose” from, only benefitting the few large carriers that have figured out how to game this system.
The bottom line is we can’t keep doing the same thing and expecting different results. Texas families need lawmakers to step up and lead.
Missed an installment of our Insurance Myths series? Catch up here.