The term "compensation cost policy" is a misrepresentation by many insurance companies about the product they are now selling. The insurance authorities should not allow the public to be fooled into buying something that is obviously not what the insurance company promises. Consequently, I propose that we consider that unless minimum standards within an insurance are met, insurance companies that sell reimbursement insurance are required for all risks and must warn that they are selling a policy that is not standard without compensation. Insurance products that are considered replacement cost policies in the housing market should at least meet the criteria in mortgage requirements for federally negotiable mortgages.
The growth for this proposal is in previous work against insurance coverage. Professor Jay Feinman of the Rutgers Center for Risk and Responsibility called for a significant reform of this problem in The Protection Gap in Houseowners Insurance: An Introduction . Professor Feinman noted the main insurance coverages as follows:
• Completely uninsured. The property owner does not have insurance for all risks.
• The underinsurance gap. The policyholder has coverage, but in an amount that is less than the extent of actual or potential losses.
• The Risk Protection Gap. The policyholder is insured, but some risks are not covered.
• Coverage gap. The policyholder is insured, a risk is covered, but the coverage is subject to other restrictions. Restrictions or limitations on the insurance policy other than the exclusion of risks prevent full coverage of actual or potential losses. The on-site insurance potentially covers risks and losses, but factors in the claims process result in a failure to pay in full.
Amy Bach and United policyholders have constantly raised the issue of policyholders who are subject to insurance that is not what is advertised. United policyholders have started RISC to combat this problem:
Restoring Insurance Safety Coalition (RISC) is a national initiative launched by United policyholders in 2020. The aim of this initiative is to reverse the trend of insurance policies as shrinking coverage for damage to homes . These paraphrases complicate the dangerous insurance coverage network that homeowners pay for and expect to be able to trust when disaster strikes. They cause a ripple effect of harm to people, communities, property owners, lenders and ultimately all of us.
Holly Soffer has worked closely with Amy Bach on this issue. Soffer introduced me together on the topic mentioned in Insurance Gaps Kill Policyholders, Your Business and Your Ability to Restore Damaged Property ̵
Insurance coverage is a recurring problem for policyholders, restoration contractors and public adjusters. With cover gaps between insurances, the policyholders and those who have left to repair the damage risk being left with little to possibly nothing to adjust for the insured. We need to stop letting insurance companies sell insurance products that are similar to a hardware store that sells a water bucket with holes in the bottom.
Even insurance agents call on state insurance authorities to do a better job of protecting consumers by securing shipments. In his book, When Words Collide: Resolving Insurance Coverage and Claims Disput insurance agent trainer Bill Wilson explains:
Government regulators need to do a better job of trying out policy forms. This may involve setting minimum coverage standards or banning policy provisions that are contrary to the public interest. It is about hiring qualified staff or hiring independent consultants to review submission forms also in use and archive or archive and use permits. I would also like to advocate that regulators demand transparency coverage by insisting that insurers make their insurance forms available to potential insured persons and even competitors, probably by publishing them on their websites, and that they be prohibited from refusing to provide copies of insurance policies to insured until after purchase.
In 2011, Professor Daniel Schwarcz of the University of Minnesota Law School published an article, Reevaluating Standardized Insurance Policies 1 which included a study of the contents of various homeowners' insurances. He conducted this study and wrote the associated article entirely in his role as a law graduate. The article has received significant recognition from many sources: it was awarded the 2011 Liberty Mutual Prize for an exceptional article on the Property / Accident Insurance Act, has been the basis for articles in newspapers including the New York Times and Wall Street Journal, and has prompted a launch of legislative and legislative reforms and initiatives.
While researching this article, I came across the difficulty of obtaining information about the different forms of different formulated policies issued by competing insurance companies:
In my article on 2011 revaluation Standardized Insurance Policies, above, I reviewed the conventional wisdom that homeowners insurance is essentially homogeneous between different insurance companies. To do this, I systematically studied the content of insurance group issuance of homeowners by premium volume in six states: North Dakota, South Dakota, Pennsylvania, Illinois, California and Nevada. I focused on these six states because these were the only states where state regulators were willing to issue a computer call to the top ten insurance groups in the states and request full copies of their "standard" policy for homeowners, including all mandatory recommendations. Alternative methods for systematically obtaining complete and accurate copies of homeowners' insurance proved to be impractical for several reasons. First, the vast majority of insurers did not make copies of their homeowners' insurance policies available to potential policyholders or otherwise publicly available prior to sale. Second, state regulations in all surveyed states did not include complete and reliable copies of most carriers' homeowners insurance policies, despite the requirement in the vast majority of states that such insurance policies be filed and reviewed by state regulators. In short, the reason was that carriers usually submitted statutory review policies when they were changed and then generally only submitted the specific text that was changed rather than the entire policy. At the same time, the legislation dated only several years ago, which makes it impossible in most cases to compile a complete picture of each operator's coverage on the basis of a legislative register. Another obstacle to obtaining complete and accurate copies of various carriers' policies using legislative registers was that almost all state insurance authorities did not make their registers easily accessible to the public, which often required a request for Freedom of Information Act or similar to even gain access. to their 2
I have written about the problem of insurance gaps and that policyholders must watch out for "cheap insurance" that does not deliver after a loss has occurred for over a decade. The problem is getting worse. More needs to be done. For the same reason, regulators and public order prescribed a standard policy more than 100 years ago, we must mandate a standard policy for compensation costs.
Merlin Law Group will put its money where its mouth is and do more to support a reform movement and force insurers to recognize when they sell non-standard and not up to compensation cost coverage. We will join United policyholders and help provide greater support to United policyholders through their Restoration Insurance Safetynets Coalition (RISC). We hope that others will join in whatever capacity they can.
State regulators need to do more. Market Conduct officials need to investigate this type of misconduct by insurance companies. The NAIC needs to step up and do something about this problem.
They seem to need pressure to do their jobs and get this done. If not from us, who?
Thought for the day
An individual can start a movement that turns the tide of history. Martin Luther King in Civil Rights, Mohandas Ganhi in India, Nelson Mandela in South Africa are examples of people standing up for courage and non-violence to bring about the necessary change.
1 Daniel Schwarcz, Reevaluating Standardized Insurance Policies 78 University of Chicago Law Review 1263 (2011).
2 American Family Mut. Ins. Co. v. Chavez No. 2: 14-cv-00411, 2015 WL 11004179 (D. Ariz.) (Expert Report and Explanation by Professor Daniel Schwarcz).