Throughout our lives, we actively seek – and passively soak up – all kinds of information to help make a multitude of large and small decisions every single day; we need to weigh potential risk vs benefits and costs.
Do I go rock climbing or ride my bike? Do I drive a bit recklessly because I’m late for an appointment? Do we put a blade guard on that saw in the shop? Which house or condo would be better to live in: the one by the beach or the one in the forest? Should I let my neighbor’s kids use my trampoline? Should we have a trampoline at all?
To aid in decision-making, we read and use online search engines, and ask family, friends, and subject matter experts for their input. We weigh and play the odds, hoping that fortune favors us with only good outcomes. And some of us take steps to mitigate potential risks to our physical and financial health: wearing a bike helmet, using blade guards, driving safely, and getting rid of the trampoline.
Those of us who work in and around the insurance industry deeply respect and recognize the tremendous value of quality information and data. We also know that finger-crossing while taking chances is not enough to avoid disaster; bad things can happen to anyone. This is one of the fundamental reasons why insurance exists: to help people and businesses recover when bad things happen to them.
Generally, the public doesn’t appreciate insurance...
In my house, we say “all roads lead back to insurance.” It’s the lifeblood of our entrepreneurial economy, an economic system predicated on risk-taking. Whatever it is that you want to do in life, at some point you’re going to need insurance.
However, if you ask the average person what they think of insurance, you’re likely to receive a number of different answers. Many people feel that insurance is a “necessary evil” and resent having to pay for it. Others will choose to be underinsured or go bare, thinking that they will deal with whatever comes their way at the time. Another group appreciates the value proposition of insurance coverage, but even they might not be able to fully understand or explain how and why insurance works for the benefit of individuals, companies, and communities.
Furthermore, many people seem to think that the dollars they pay for premiums are set aside just for them, tucked securely away in a vault until the day when they may need it. They don’t fully get the concepts of risk pooling, the law of large numbers, relative risk, modeling, exclusions, deductibles, ACV vs replacement cost, or other important aspects of their actual insurance policy.
Finally, people do not see paying for insurance each year while not having a claim as a “win.” In reality, this outcome is a win; it means that their decisions and the odds actually benefitted them during that time period. It is our responsibility to help people understand the amazing value that derives from having insurance, both before and after the odds turn nasty.
By clearly demonstrating what insurance coverage does and does not cover, policyholders are empowered to better understand their individual policies and, in the event of a claim, confidently navigate the necessary steps to recover from a loss.
What effective insurance education can do
1. Reduce policyholder friction
Lack of mutual understanding of policy terms and conditions often leads to policyholder conflict and complaints. While policies lay out the responsibilities and obligations for both insurer and insureds, most personal lines insureds – and too many commercial insureds – don’t actually read their policies until after an event occurs. As the provider of the “contract of adhesion” we offer customers, we have a duty to explain as much as we can in clear language. This isn’t always possible, because decades of litigation and regulation have caused insurance contracts to be pretty dense and lengthy. Still, we must try – the effort will be appreciated.
2. Help manage policyholder expectations
The lifecycle of an insurance policy demands awareness and understanding on both sides. Educating policyholders about what to expect – or not – from their insurance company throughout the policy’s term is paramount, and setting realistic expectations can greatly help policyholders to successfully navigate the claims process following a covered event.
3. Improve carrier's customer experience ratings
Informed stakeholders are more likely to have positive experiences with their insurer. In this era, when user experience ratings strongly align with both new customer acquisition and current customer retention, a well-informed policyholder is more likely to rate their experience favorably and stick with a carrier.3.
4. Avoid/reduce complaints to state regulators:
Complaints to state regulators often arise from policyholder ignorance or misunderstandings of insurance contracts. Investing in insurance education for customers can help improve a company’s complaint ratio.
So, what should we do?
First, we have to recognize that we have more than one audience to educate. There is the broader, general public, state regulators and other government officials at the state and federal levels, as well as media representatives and other business sectors that are insurance industry-adjacent, like the roofing industry. Since there is turnover in all of these audiences, there is an ongoing, consistent need for us to be out there educating stakeholders.
Fortunately, the insurance industry has a long history of explaining our products and services, both individually and collectively. But we can’t rest on our laurels, believing that there is already enough information available for policyholders, so that they can simply find exactly what they need to know. We must continue to evolve, to grow, and most importantly, to meet people where they are in life and within the cultural climate that exists today.
As younger people grow into adulthood, we need to provide them the resources necessary to succeed. Embracing new forms of communication is imperative; fun and engaging infographics and short-form videos are in.
We must break complicated concepts down into digestible nuggets, presented in compelling ways, for the information to stick. If we can successfully get simple concepts across and build upon those blocks, a more sophisticated understanding falls into place.
We need to do more, in any way we can. Whenever an opportunity arises, be it on the phone, in person, online, or by traditional US Mail, we should take the opportunity to pass knowledge along.
Examples of important insurance-related education topics and some points to consider:
The policy
- The four corners of the policy are it for coverage. If something is drawn into the policy limits, terms, and conditions, it is covered and there is premium paid for that coverage (which leads to options and endorsements for policyholders).
- If something happens that is outside of their policy limits, no matter how awful it might seem to a policyholder, it is not covered. Because the vast majority of insureds do NOT read their policies, we have to over-communicate in an attempt to eliminate surprises and anger or disappointment with the individual involved, but also among members of the public - who tend to rally around people who have suffered a loss.
Premiums
- As I mentioned above, a pervasive misconception people have is that there is a shoebox in a vault somewhere with their name on it, and all of the premiums they pay over many years just go into that box for use if/when they file a claim. This is incorrect and leads to policyholder frustration and anger when a claim is actually filed, because the claims process is complicated.
- The better way to think about this is that every single day, there are people who have losses and NEED to file claims – you are fortunate if it isn’t you. If you don’t have to access your policy during the year, that is a WIN, not a LOSS. And if/when you do have a loss, other similarly situated people or businesses in your risk pool who were more fortunate at that time will help cover the costs of your damage, because the insurance company has managed the premiums, investments and reserves very well. After all, that is what they exist to do.
Claims
- If a residential or commercial policyholder is filing a claim, obviously something bad has happened to them; it could be the worst thing they have ever experienced. It’s up to us to be very clear about what happens next with their claim, when things will happen, and why we are doing what we do. We have to appreciate that people may only file one claim in their entire lives, so have no experience other than what they have heard from others or read in the news. We need to patiently explain and educate claimants; if we don’t, members of the trial bar certainly will – and they have a very different take on things…
Regulation
- Insurance is a HIGHLY regulated industry – particularly on the personal lines side and for the consumer’s benefit. On the commercial lines side, there is an expectation that the policyholder is more sophisticated since they negotiate deals and contracts on a more regular basis.
- One important regulatory issue is financial management of the dollars that insurers take in as premiums. Insurers can’t just invest premiums in whatever they want; they have to reserve for claims, etc., so that every policyholder with a legitimate claim gets compensated.
- State insurance departments examine everything a company does. In many states, forms and rates have to be intensely scrutinized before they ever see the light of day from a policyholder perspective.
Sources of insurance-related educational material
Of course, WSRB does a truly terrific job of educating both our own industry colleagues and the general public about both commercial and residential property issues. In addition, several other industry-supported organizations at the state and national levels provide valuable materials.
For general information about property casualty insurance topics, there are a number of public-facing groups with terrific resources:
- NW Insurance Council
- Insurance Information Institute
- Insurance Institute for Highway Safety
- Insurance Institute for Business & Home Safety
- Insurance Institutes of America
- National Association of Mutual Insurance Companies
- American Property-Casualty Insurance Association
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Let’s seize every opportunity to enlighten those around us – and most particularly, our customers – about why and how our incredible industry works. Such an ongoing investment will pay tremendous dividends now, and well into the future!
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