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Insured see climbing rates, as coverage declines
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Hurricanes, wildfires, hail storms: all the wild weather the past few years is taking a toll on homeowners' insurance rates. Many premiums are up 10 percent or more this year. And you may be getting less for your money.
Merle Scheiber filed his first-ever hail claim this summer when a storm pummeled his roof.
"I actually got to experience first hand dealing with the insurance company," Scheiber said.
Scheiber is not your typical insurance customer. He’s South Dakota’s Insurance regulator. He didn’t have any surprises dealing with the company, but like many of us, even he says he doesn’t look at the policy when it comes in the mail.
"I know pretty much what’s in it," he said. "But no, I don’t even read mine when I get it."
And, if he doesn’t, what about the rest of us? Many will just notice the bill.
"One thing that will get consumers screaming loudly is a rate increase," said Amy Bach, who heads the consumer group United Policyholders. She said that’s why many companies are changing what they cover, trying to keep premiums down, even as the policy itself is less valuable. "Reducing coverage in legalese is something most consumers will miss."
So, that mold coverage you thought you had? It might be gone. Hail damage? Your deductible for that might be higher. Instead of replacing your wood floors with the same quality, now you might just get what’s available.
Daniel Schwarcz studies the industry at the University of Minnesota, and he says policies are being “hollowed out.” "Usually people don’t even find out they have less coverage until they end up having a claim and get denied coverage on that basis."
"They’ll put something that’s clearly stated in writing so that the policyholders should understand what the changes in the policy are," said Jeanne Salvatore of the Insurance Information Institute. She said the companies aren’t trying to hide anything, and that customers should ask if they’re not sure what the changes mean. That way, you won’t be left with less coverage than you thought.
A couple of really important concepts to consider before you can blame insurance companies for rising premiums.
1. The first is complex but far reaching: The modern consumer wants convenience - even in products that are complex - and thus insurance companies have been unwittingly led, primarily, by Progressive Insurance ceaseless ad campaign (and it's long term affect on buyer's behavior) to commodify a legal document.
News Flash for Millennials: Just because you want it fast and you want it now doesn't mean you should get it that way. And if you do, it doesn't mean you are absolved from understanding what you are buying.
This trend has lead the industry down the "competitive" road. Amazingly, no one complained when insurance companies kept adding value into their policies, covering a wider range of perils and offering a broader spectrum of Replacement Cost coverages (as opposed to actual value {depreciated}) without charging extra premium. Some of today's trends of removing coverage are actually taking certain homeowner's forms back to where they used to be! If you want a great example of how effective this commodifcation has been, notice your own story fails to mention Consultation by an Licensed Insurance Professional - an Agent! Consumers would be smart to demand better consultation and stop buying complex legal documents on the internet or from an inexperienced agent who maybe took 5 tries to pass the test and never broadened his knowledge beyond the minimum!
2. Property Insurance is NOT a right. It is a product. Affected by market forces. It is effectively a gamble, a bet, a long term investment. Simply put, you give me 7$ for $100 worth of risk.
I take your $7 and make a promise to pay you $100 in the event you have a loss. And for the privilege of doing this, the state says I have to keep $2,000 - $10,000 in a Premium Trust account that I can never access. Now, add three zeros to all these numbers and you have the reality of property insurance.
All over this great nation people are paying roughly 7% to insure 100% of the value of their home. And for every $1 an insurance company gambles, they are hoping at the end of the year to only pay out .90 cents worth of claims.
