Insurance policies are very confusing to most people. Many get the feeling that insurance companies purposely try to confuse policyholders. This confusion is believed to trick policyholders into paying more than they need to for their policy and getting less from the carrier when a claim is made. This is why we wanted to explain the process in detail with the hopes that we can make the process a little more clear for you.
You probably already know that adjusters and salespeople don’t set carrier’s rates. However, it may surprise you to hear that the underwriters, whose job it is to assess risk and adjust the claim price, don’t set the rates either. It is true that the underwriters edit the rate but they don’t create the overall rating system.
Every insurance company has a division called an Actuarial Department whose primary goal is to assess multiple industry trends, corporate policy changes, economic factors, internal and external claim analytics and societal tendencies which they use to develop the base policy rates. This determinant is the first step in deciding how much an insurance policy will cost a potential client, however, they rarely interact with the clients.
Actuaries use historical data to create accurate predictive models. As the need to adjust or amend the base rate arises, the predictive model also increases. For example; as hurricanes on the East Coast become more frequent, insurance policy rates will change to reflect this pattern.
The actuaries are the ones who amend the rates. The largest benefit, and potentially biggest flaw, is that they are primarily concerned with the mathematical impact. In other words, they only look at the numbers.
They don’t care about the fact that you installed the best and most intense training for your employees and they don’t care that your home is located in an area that never floods even though you are technically in a flood zone. They are only concerned with researching the numbers and creating the rules to adjust the rates accordingly.
Poor customer service
Insurance companies are notorious for having poor customer service. In the past, insurance companies were of the belief, no news is good news. They were of the mindset, that if they don’t hear from their policyholders things are running smoothly.
However, the invention of the internet has made it easier for people to regularly review several insurance company’s products and pricing. As a result, insurance carriers are now spending more on marketing because their competition has greatly increased.
Why is my insurance carrier paying me $X,XXX when my roof is worth more?
We usually expect the maximum amount from our insurance carrier, when a claim occurs. However, our insurance contract may not reflect this belief.
Most insurance contracts are replacement contracts. This means that if something is damaged, the carrier will replace it with a like-for-like type of product. The accepted language in an insurance policy is like kind and quality.
For example, if all of the shingles are damaged on your roof, the insurance company is obligated to replace them with the same type of shingles. However, if the shingles you have on your roof are no longer manufactured, the next closest type of shingle should be used. In other words, inferior material will never be used.
In some insurance policies, there is specific language called actual cash value which pays the replacement cash value benefit. In this instance, the insurance company will pay you what your roof is worth without including depreciation costs.
Overall, the solution to the confusion that centers around insurance carriers is visibility and understanding. If insurance carriers showed how their rates are created, and they explained this and their overall policies, people would have a much better understanding and not assume that the carriers purposely confuse them just to be able to trick them into accepting their terms.