In the classic 1933 political satire Duck Soup, the minister of finance presents his first report to Rufus T. Firefly, newly appointed ruler of the fictional nation of Freedonia. The minister expresses his hope that “His Excellency” will find a Treasury Department statement about the country’s mounting financial liabilities crystal clear.
Groucho Marx, playing Firefly, arches his signature eyebrows and scoffs at the outrageous suggestion that as head of state he might be confounded by such a critical document. “Why, a four-year-old child could understand this report,” he insists, before turning to an aide and whispering, “Quick, run out and find me a four-year-old child. I can’t make heads or tails of this!”
Such is the condition facing many insurance consumers when it comes to being able to comprehend their insurance policies. And I’m not just talking about personal lines buyers, either.
Deloitte Research recently ran a pair of focus groups examining the needs, preferences, and shopping habits of small-business insurance buyers. Many echoed complaints commonly heard among individual auto and homeowner insureds when it comes to the claims management process in general and their policies in particular.
For example, few of the 20 focus group participants said they even bother to read their business insurance policies. A few explained that they simply didn’t have the time, but most insisted it’s because they tried, but—like Rufus T. Firefly—they couldn’t understand what the documents say about their coverage.
“It’s written by lawyers for lawyers,” complained one buyer for a safety engineering company, who speculated that carriers purposely make their policies overly complicated “because they are looking for a way out [of paying claims]. They leave lots of escape hatches.”
A number of the participants noted that this is no small issue to them. One major claim rejection because of unfamiliar exclusions or some other misunderstood technicality could put these firms out of business overnight. “Why can’t they communicate in plain English,” lamented a buyer for a collection agency, echoing the plea of a number of her fellow attendees in concluding, “My policies might as well be written in Greek.”
This doesn’t bode well for those involved with claims management. I would think that consumers who are surprised by what their policies exclude would be more likely to sue than if they understood ahead of time what risks weren’t covered. But even if no claims are ever filed, leaving buyers clueless as to what their policies actually say undermines the industry’s reputation for customer service.
This lack of clarity in policy language prompted the focus group members to emphasize how dependent they must be on their agents and brokers when it comes to reading policies and making sure their business exposures will be covered when a claim is filed—particularly for those risks specific to their industry.
An event planner hopes to avoid coverage gaps by convening an annual lunch in which she “plays devil’s advocate,” quizzing her broker about “the worst possible thing that could happen” to her business and asking to see where that exposure is addressed in her insurance policies. She added that she wishes her broker would assume more proactively this claims management role.
On a practical level, having an intermediary vouch for an insurer’s coverage also provides a convenient target in a worst-case scenario. Buyers can simply sue their agent or broker for any professional oversight and try to collect damages from the intermediary’s errors and omissions carrier.
But wouldn’t it make more sense—and put the industry in a much better light—to simply draft insurance policies so they are easier for buyers to understand in the first place?
In any case, the focus groups’ comments about the lack of clarity in insurance policies led to a broader discussion of the overall claims management process, which most of the participants found rather mysterious. Few recalled any discussion of how a loss would be handled or how any dispute over coverage would be settled when they bought their policies. If claims are addressed at all before an event, it’s often just to provide a toll-free phone number to report a loss to the carrier.
The onus appears to be on the customer to ask what happens if a claim arises, according to a buyer for a finance company. What a consumer hears about the claims process “depends on how proactive you are,” he said. “It’s don’t ask, don’t tell” as far as the insurer is concerned. (He added that the same observation applies to finding out what is and isn’t covered in a policy.)
Again, agents and brokers were cited as the firewall here. The
A business consultant in one of the focus groups said his broker “must be part of the [claims] process and be held accountable. Come renewal time, I make it clear that the decision whether to keep the broker and the insurer would depend on how they performed during the claim.”
Others agreed that the intermediary should take the lead because they know the drill in how to manage a claim. “I already have lots of other fires to put out,” said the buyer for a wireless company. “I delegate claims to my broker, who I trust to handle this.”
One buyer for a chain of dry cleaners said such “intangibles” make the difference in deciding whether to stick not just with an insurer, but with an intermediary at renewal. “My basement was flooding, and my agent just showed up even before I had filed a claim to see if there was anything he could do to help to contain the damage,” he recalled, adding that he sticks with his current agent because “he goes that extra mile.”
On the other hand, one retailer in the focus groups said he realized that, “while it would be ideal if the broker handles claims, that may not be feasible” because of the amount of time and effort involved. The business consultant cited earlier also conceded that “we may be too small of a client to earn that much attention [from the broker].”
I would argue that agents have to make the time to help clients manage their claims—not just as a “nice to have” customer service, but as a “must have” for their future survival.
With technology facilitating more direct contact between insurance carriers and their customers, agents and brokers are vulnerable. The threat is especially acute for those who focus primarily on shopping for the lowest available price. Intermediaries run the risk of being marginalized unless they carve out a visible and differentiated role in valuing property, assessing damages, and helping clients resolve their claims.
Still, agents and brokers should not be the sole line of defense for a buyer with a claim. Insurers need to clearly spell out how the claims management system works, set realistic expectations around duration and timeliness, and better integrate claimants into the process.
Rufus T. Firefly had it right in Duck Soup when he refused to see an ambassador who supposedly had a sudden “change of heart” when it came to dealing fairly with Freedonia. “A lot of good that will do him,” Groucho’s character quipped. “He still has the same face.”
Whether here or in Freedonia, insurers run the risk of also being seen as “two-faced” if they profess to be dedicated to protecting their customers yet keep them in the dark about their coverage and how the claims management system functions.
Such a poor impression would be tough for most consumers to shake. “A Firefly never forgets,” declares a slighted Groucho at one point in the movie. “Why, my ancestors would rise from their graves, and I’d just have to bury them again.”
Sam Friedman is insurance leader with Deloitte Research, part of Deloitte Services LP in the U.S. He has been a CLM Fellow since 2011 and can be reached at samfriedman@deloitte.com.