Are We Really Surprised That They Don’t Know?
96% of homeowners have it and they spend an average of $868 per year for it. Yet, a new survey shows that they don’t understand what they bought. A 2007 National Association of Insurance Commissioners (NAIC) survey revealed that one-third to one-half of homeowners’ insurance policyholders were misinformed about what perils are covered by their policies and how much they might receive if they made a claim.
We shouldn’t be surprised. Policies are lengthy legal documents constructed with boilerplate language that is then modified with numerous notices and endorsements. Even motivated readers who put on their reading glasses are unlikely to be able to relate the significance of the policy provisions to real-world events. Consider the term "actual cash value." Shouldn’t we admit that it sounds like a good thing, not a bad thing? To real people (not lawyers), it sounds like what it costs to buy the item, not its depreciated value.
What’s more, insurers have practically trained customers to be passive consumers. Many policyholders don’t even read the policy because they don’t expect to be able to understand it. So, customers coast along in blissful ignorance until they hit the rare event of a claim and then they understand the significance of what they did or did not have covered. Consider your own circle of family and friends; typically, they will have only one or two homeowners’ claims in a lifetime. As an industry, does it really make sense for property-casualty insurers to rely on ignorance to stave off customer dissatisfaction?
What would change the scenario? A sales process laden with plain English explanations and reality-based modeling would enable homeowners to understand what they are buying. Basic technology such as on-line calculators and scenario builders would help homeowners customize their policies to the risks and characteristics of their location, building type and weather conditions. In addition, examples could help them relate risks to circumstances that they could envision. Homeowners might even be inclined to be less "penny wise and pound foolish" and pay more for better coverage.
The insurer who lets the light in and really communicates policy benefits and exclusions will achieve a point of competitive differentiation. Think about other industries faced with parity products—perhaps, banks and telephone service providers. You don’t really know if your bank transfers money more efficiently than any other, but you do know if the teller is friendly, whether they make you fill out reams of paperwork in triplicate or that they are only open five hours a day. That’s why Commerce Bank offers free coin counting, allows pets in the bank and has convenient hours seven days a week.
What these companies are realizing is that the battle is no longer for the minds of their customers but for their hearts. That’s a big change in focus. Ties that are based on emotion rather than intellect must be constantly reinforced and are hard to predict. For the insurance industry, clarity, honesty and transparency would be so rare that they would form this emotional connection. Customers’ expectations would be forever changed.
Usually, it is only when one company in a category wakes up to an overlooked array of customer touchpoints that an entire industry changes. Health care services are a good example. Outpatient surgery facilities are competing by having broader hours, doing follow-up "how are you feeling" calls, letting family members stay with the patient, sending you home with "goodie bags," etc. Hospitals advertise heavily to make sure you realize that an appendectomy is not the same everywhere. In just a few short years, patients have been transformed from passive subjects to active participants and their expectations have ratcheted up in proportion.
True devotion to understanding the customer experience requires an obsession with detail. Insurance companies are well positioned in this regard because they are obsessed with avoiding litigation. Turning this on its head to achieve a laser-like focus on informing customers could change the paradigm of the industry. I wonder which company will lead?
Until then, I’ll sit in my hammock pondering whether my homeowners’ insurance will cover me if the tree I’m under falls on me and the house. Will it matter if it falls due to lightning, termites or my weight in the hammock? An online scenario tool could tell me.