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.

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I recently heard a radio ad exhorting everyone to make sure that their real estate agent is a “Realtor.” I wondered what that meant—would a realtor have a special license and how did it differ from the terms “agent” and “broker”? Then, a few days later, I came across an article promoting the use of a “Certified Buyer Representative.” As though buying or selling a home isn’t already filled with aggravation, apparently there are at least 8 designations of types of real estate professionals: CBR, C-CREC, CEBA, CRP, CBA, CRS, ABR and GRI. You can explore this alphabet soup yourself at www.CBRsource.com. What might the difference be between a CBR: Certified Buyer’s Representative and a CEBA: Certified Exclusive Buyers’ Agent? Don’t look to me for the answer, I’m still confused.

Isn’t this a classic case of industry self-absorption? Who has the time or inclination to find out what each of these is and when to use one or another? Even doctors have the good sense to name their specialties in a recognizable way (orthopedist, ophthalmologist, cardiologist, etc.). Industries that don’t look at themselves from the customer’s perspective risk looking like they are trying to dupe the customer. The idea of a buyer’s agent might be a very solid one but at the moment I’m too busy to find out because I’m looking for a headache specialist.