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Time to Reform the Homeowners Insurance Market to Make Purchasing Insurance More Transparent and Encourage More Insurance Companies to Enter the Market

homeowners-insurance.jpgWith the 2013 Florida legislative session about to begin, it is time to start talking about potential reforms to help consumers understand what home insurance products they are in fact purchasing. Florida continues to be plagued by scandal to Citizens insurance, coupled with sky rocketing insurance rates. Not only that, but too often Florida homeowners are not properly advised of the scope of insurance coverages that they are in fact purchasing.

As we head into the next legislative session, here are some thoughts on how we can help make the insurance market more transparent for both insurance companies and homeowners alike:

(1) Push for a single policy that serves as a minimum baseline of coverage. Too often we see insurance companies writing different coverages and different exclusions. Here is a NY Times article discussing this very issue in great detail. Promulgate a single policy that everyone must use and adopt, and this will make it much easier for everyone to understand exactly what is being purchased.

(2) For a consumer to understand what they are buying they really need to rely on their insurance agent. The insurance agent needs to understand the difference between say an HO3 policy v. a HO6 policy. And if they do understand the difference, the actual coverage purchased may be watered down by certain exclusion or cap on damages (see no. 1 above). To correct this issue, Florida should adopt some type of graph that makes it easy for the consumer to grasp what they are in fact purchasing. A “nutritional label” or pyramid scheme of coverages would help the unsuspecting consumer understand what they are purchasing. So we should not only make the policies consistent, but we should make it easier for the consumer to understand what they are purchasing too by providing some form of graph or pyramid so they could actually see the scope of coverages being provided.

(3) Everyone likes disclosure. And with insurance, the old adage is important – you don’t need it until you need it. But too often there are some insurance companies that are simply too quick to deny a claim. But those are often the insurance companies that offer the best rates. So consumers should understand what they are purchasing, and from whom. The consumer should be provided with the variables regarding that insurance company. In other words, the consumer should not only be provided with information regarding the financial strength of the company in the event of a catastrophic loss, but the consumer should also be provided information regarding information pertaining to (a) the percentage of claims denied, (b) the average time within which claims are paid, and (c) the frequency of non-renewal or cancellation within a year of a claim being submitted.

(4) In an effort to promote more competition in the market, and encourage more insurers to enter the market, there should be goals that are established that would permit the complete abandonment (or loosening) of price regulation designed to suppress insurance rates so long as a certain number of companies are in the state of Florida providing insurance coverage. By the same token, extreme pressure should be put on those companies that want to offer insurance for all of our cars (and boats) to make sure that they also offer homeowners policies too. Possibly providing some form of financial incentives to enter the market may also be useful to get the insurance companies to do this too.

(5) Insurance agents should receive the same amount of compensation regardless of the carrier with which they place consumers. Too often insurance agents may attempt to steer a consumer to insurance company A because the financial incentives may be better than if insurance company B were selected by the consumer. But that also assumes that there is/was a choice for the homeowner/consumer – something many of us don’t have given how restrictive the market is currently.

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