“Doctor, thanks for seeing me; this is what you should do to properly treat and cure me.” Can you imagine this scenario? Can you imagine paying a doctor and the doctor expecting that you will order what is needed for you to be cured? Of course not.
But in the insurance purchasing world, this is what many insurance agents say their duty is to their clients—to get paid to just take orders for being properly insured. It is really illogical and against public policy that the law actually allows this scenario to go on in many states when the insurance industry acknowledges how important and complex the purchase of insurance is.
A new study commission by the lobbying arm of the insurance industry, the American Property Casualty Insurance Association, published a study stating that most policyholders are probably underinsured and warning about the consequences:
A new APCIA/Harris Poll survey reveals a majority of insured homeowners across the country have not taken important steps to ensure their insurance coverage is keeping pace with rising inflation, including increased building costs and potential reconstruction delays due to labor or materials shortages, which could leave policyholders underinsured if catastrophe strikes.
How about insurance companies and insurance agents raising the issue with their customers. Coinsurance issues, mortgagee compliance issues, and underinsurance issues are present. This is not a situation of “it may happen in the future.” Instead, the inflation of construction costs has happened, and unless there has been an increase in properly insured-to-value policies, every policyholder is now underinsured.
The study reiterates to insurers that they sell a product that the majority of their customers do not understand. They also know that a vast majority are underinsured. The insurance industry needs some leadership and responsibility to take matters into their own hands and do something about it.
What is it going to do? Should insurance companies be allowed to enforce coinsurance provisions knowing that their insureds are underinsured? Many reinsurance treaties are based on the good faith that requires primary insurance underwriting to be insured to value. That simply is not happening now. Should reinsurers accept that their primary insurers are not underwriting with insurance to value as a concern?
Inflation has a lot of dire consequences. Rampant underinsurance of property values is one of them.
Policyholders should call their insurance agents to make certain that they have enough insurance. They should inquire about the types of guaranteed replacement cost coverage that are available.
Thought For The Day
Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man.