The Legacy of the ‘New Way’ to Do Insurance: MORE Reasons to Hate the Insurance Industry?

In addition to Lemonade’s gun “stance” in their most recent blog post, here’s another reason people hate the insurance industry from Tim Dodge’s (IIABNY) blog, as republished at InsuranceThoughtLeadership.com:

Why the Public Hates the Insurance Industry

by Tim Dodge

I don’t ordinarily blog about my opinions, but permit me to depart from tradition today. I recently received a phone call from an IIABNY member (an agent whom I will keep anonymous) that still bothers me.

The agent told me that he had a homeowners insurance policy covering a husband and wife. Recently, the husband died. At the widow’s request, the agency sent a change request to the insurance company (which will also remain anonymous), asking it to remove the deceased husband’s name from the policy. The company issued an endorsement to the policy, along with a bill for an additional $26 in premium. Like any good agent, our member called the company to ask why the widow was being charged $26 for taking her late husband’s name off the policy. The answer: The company ran a check on her credit score and found that it was not as good as her husband’s. Under the company’s pricing system, this knowledge generated a higher premium.

This insurance company charged a new widow $26 because she was more of a credit risk now that her husband was gone.

Please take a moment to reflect on the coldness of that decision.

Now, I understand how this probably happened: The request came in, the insurer’s computer system automatically ran a credit check, read the new score and issued the endorsement/bill. Insurance companies, which like to moan and groan about how auto insurance has become a commodity, now treat it like a commodity that comes off a production line with as little human involvement as possible. This process is more efficient than having underwriters review most accounts. The process also produces atrocious outcomes like this one.

The American public does not have a high opinion of the insurance industry. People we interact with may like us individually, but they think our industry as a whole is a parasite, sucking gobs of ill-gained money from the economy. And why do they think that way? Because insurers pull crap like this.

There are so many good people in the insurance industry. You and I meet them every day — agents and brokers who spend hours lining up quotes for appropriate coverage at fair prices. Claims people who work 16-hour days for weeks after a natural disaster, trying to get claim checks out to their insureds as fast as possible. Underwriters who struggle to arrive at prices high enough to please their employers and low enough to please their agents. Loss control engineers who spend long hours with clients to make workplaces safer. Thousands of people who show up for work every morning wanting to earn their paychecks fairly and who do the right thing for their customers. I could go on and on.

And all that effort and all those good intentions get washed away in the public’s mind when an insurer pulls an insensitive, stupid act like this. If this were an isolated incident, we could explain it away, but we all know that it’s not. Things like this happen all too frequently. No doubt the insurer’s employees will say that the system did it. Maybe so.

You know what?

I don’t care.

The IIABNY member who called me asked me to research New York insurance law to see if there is any basis for telling the insurer that this action was illegal. I truly hope I find one. The agent did not tell the woman why her premium went up, but she paid it. I guess she felt it was the right thing to do.

Too bad her trusted insurance company doesn’t have that same sense of honor.

People program computer systems. People can override them. People who are paying attention can stop something like this from going out the door in the first place. Or they can charge a woman $26 because her husband died. If it were you, which action would you like to go home and tell your family about?

Two things these incidents have in common is that they come from the “new way” to do insurance. In Tim’s case, what happened would never (or rarely) have happened before the growing love affair with “big data” and predictive modeling, in this case represented by insurance/credit scoring. In Tim’s example, we hit a widow when she’s down because that’s what the “numbers” (the “model”) tell us is fair.

In Lemonade’s self-serving, disingenuous, and emotionally manipulative use of a human tragedy for marketing and self-promotion, they further lower the bar. As a start-up “disrupter,” their “angle” is that they are socially conscious, unlike the conflicted entrenched, money-grabbing players of yesteryear. The premise is that they exist for the good of consumers. However, in their recent series of PR ploys, they demonstrate that protecting the public and their customers is not high on their list of priorities. Their bizarre self-service announcement was touted to allow insureds the convenience of reducing limits and coverage, dropping spouses and others from insured status, etc. The reality is that this simply reduces Lemonade’s customer service expenses while imperiling the financial solvency of insureds who unilaterally make changes in their insurance programs without understanding the potentially adverse consequences.

In their most recent soapbox soliloquy, they give “transparency” and honesty lip service, yet say their $2,500 limit for damage to guns is their way of being morally superior to other insurers and reducing gun violence. The reality is that the majority of homeowners policies limit damage to firearms to $2,500 or less. The actual limit in their ISO HO policy has nothing to do with gun violence. Once again they are being disingenuous at best and deceitful at worst. Yet today’s industry media eat this stuff up and regurgitate every press release Lemonade and other “disrupter” enablers and vendors spew like an alcoholic sailor on shore leave. Their hype and hyperbole are never challenged; tough questions are never asked. Either the ‘journalists’ don’t care, are too lazy to research the issues, or simply lack the experience and historical industry perspective to know what questions to ask.

When I retired from the Big “I” last year, I wrote an article for Independent Agent magazine called “The Six Worst Things to Happen to Insurance in the Past 50 Years.” Number 3 on my list was about the growing obsession with data vs. people. I recount a real claim from the past when an agent negligently failed to insure a barn that was a total fire loss. The branch manager of the insurer contact the four other branch managers of farm insurers represented by the agent and they all agreed to each pay one-fifth of the loss “so their agent wouldn’t be embarrassed in his small community.” How likely is this to occur today? In the case of insureds, the “people” focus of insurers is far less than it was in years past, as evidenced by their actions and not the hype and hyperbole of their press releases and advertising.

As anyone who subscribes to my blog knows, I often rant about the potentially destructive abuse and dehumanizing impact of technology. I also know that many “hipper” players in the industry view me as the old man on his front porch yelling at the “disrupter” kids to get out of his yard. I don’t think I’m a Luddite. I love technology and have embraced it over the years. But I recognize its faults and limitations. It’s a tool. Nothing more. Today, far too many treat technological innovation like a religion and anyone who challenges this new age is committing heresy.

I’m expecting any day to get an email from one of these upstarts that says, “Welcome to the insurance Matrix, Mr. Anderson.”

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Bill Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com where he blogs about P&C insurance coverage and claims issues, along with emerging industry issues ranging from the perceived commoditization of personal lines to the efficacy of price optimization.