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Underinsured Concerns

"Majority Of Home And Auto Policyholders Are Concerned They Are Underinsured"

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This is the headline based on polling in mid-October 2022. HUB sponsored the research and kudos to them for doing so. I encourage everyone to find the survey results and read them. One key point is that 59% of policyholders are concerned their insurance coverage will not be adequate in the event of a claim. The other 41% are delusional, ignorant of their lack of coverage, or extremely overconfident.


About 100% of policyholders are materially underinsured. I have audited tens of thousands of personal insurance files, conducted hundreds of E&O audits, and taught hundreds of insurance coverage classes. The vast majority of agents do not offer adequate coverage due to some combination of the agent not knowing coverage options well enough to offer their clients the needed coverages and/or because they think (and often know) that their clients will not buy adequate coverage so why waste their breath?


Another reason is the discombobulated use and quality of Replacement Cost Estimates. Another far more nefarious reason, a dirty secret that those who work in the trenches daily know, is that some carriers and agents purposely, quite purposely, sell inadequate coverage because that is how they get to a lower rate. The most common example is, "You only need to insure your home to 80%..."


Rationalize that thought process all you want, but it is bad advice and the number one reason it is used is to convince a homeowner that the agent is looking out for them by finding a way to cut their premium. Premiums are lower because coverage is lower, i.e. inadequate.


A friend asked me recently about the barrier agents encounter when offering better coverage. The barrier is that the insured does not want to pay more for insurance. They do not want to pay more and in fact, they do not want to pay anything because virtually no one but arsonists want to buy insurance. Insureds buy the base amount because they are forced to do so and think that is all they need. No one has ever taken the time to explain to them why and what buying more than the minimum, which is almost always inadequate, will do for them. Consumers will not buy the additional coverage they need if no one ever takes the time to explain the coverage and the benefits of that coverage to them. No magical osmosis will happen. No transcendental thought process exists when it comes to insurance knowledge.


Offer the coverage and if the consumer does not understand it, explain it. Let them make an educated decision. Let them make a decision regarding the trade off between paying more for the coverage they need or self-insuring. Is $50 more in premium worth it to them to avoid becoming their own insurance company?

 

NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand Insurance Education, Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.


None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.

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