The Forest and the Trees

Nearly every insurance publication is touting the woes of the industry, claiming that the tragic events of September 11th coupled with escalating mold claims are destroying the financial stability of the entire insurance industry. Insurance industry associations have created web sites designed to create sympathy for the industry in this time of plight and editorials attempt to blame families with legitimate claims for the skyrocketing premiums. Indeed it is a sorry state of affairs. The funny part about it is that we all have a stake in keeping the insurance companies healthy so they can honor their obligations not just to us but those that come after us. And, we want premiums to be reasonable.

Pondering the industry's dilemma I am taken back to the mid-90s. I filed a claim with my insurance company when my pipes froze because of a power outage that lasted for a week. During that freeze, I was unable to drip faucets to prevent busted pipes because my water supply (a well) was powered by electricity. The claim resulted in a fairly costly repair because a lot of expensive wallpaper was destroyed and needed to be replaced in a foyer.

Those were the glory years for insurance companies. Profits were soaring as were stock prices. Everyone, including the individual investor, seemed to be riding high. There was no need for insurance companies to lobby for exclusions and premiums increased proportionate to cost of living increases.

In order to replace my wallpaper, I had to purchase it through an interior designer who bought it from the manufacturer for cost, marked it up 50% and resold it to me for retail plus tax.

Back then, I wondered why my insurance company did not have an on staff interior designer who could purchase this exact pricey wallpaper and other items at cost for me.

Imagine the savings that insurance companies could enjoy if they had an on staff architect or designer acquire items in cases where replacement was necessary. Furniture, fabrics, wallpapers and other items could be purchased by the insurer at cost, delivered to your door tax-free (if out-of-state) and everyone is happy. The policyholder gets their damaged items replaced with the identical item or an item of similar quality and the insurer pays about 50% of the cost otherwise paid. Building materials and appliances could be treated the same way although builder's discounts are not as juicy; the average builder's discount is about 20% off of retail.

Sounds like a plan, doesn't it? Not so fast. Believe it or not, this is something that many insurers have asked state insurance commissioners to be allowed to do and their requests were denied because policyholders wanted to be in control of these purchases.

In a time where insurers are sustaining losses, it's wise to rethink these cost cutting measures. If not, insurers will continue to slash important areas that have dramatically impacted claims handling and the ability to pay on claims.

Perhaps the insurance lobby isn't seeing the forest for the trees. They should focus on re-seeking approval for these cost cutting measures instead of seeking ways to limit coverage while increasing premiums or resorting to bad faith to escape liability, the latter of which may result in punitive damages that exceed actual damages.

What we are seeing during these times of economic downturn are insurers cutting the number of staff adjusters and other claims support staff to trim budgets. This will clearly translate into more delays since there won't be enough personnel to handle claims in a timely manner. Another cost cutting method being used is to limit the amount of "investigation" done to determine a scope of work required and low balling estimates in hopes that the policyholder will accept the inadequate payment. Of course, the old faithful -bad faith- will continue to be the industry's fall back plan in turbulent times, meaning more denials of legitimate claims and disputes regarding the cost of proper repairs.

I for one would rather see some creative cost cutting done to enhance profits than I would slashing of essential claims handling resources.

We've got a stake in our insurer's financial stability. We don't want them broke. We want them healthy so they are able to pay legitimate claims and we want premiums to reflect the coverage we get. I believe the American policyholder would be happy to make a trade off: Let the insurance industry serve as a procurement house for furnishings and materials needed in claims where replacement is necessary. That will trim fat and will make them less likely to employ bad faith tactics in their claims handling process.

Check here to read each editorial. New editorials are added frequently so be sure to visit this section often.

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THE RATE GAME: A STACKED DECK AGAINST THE POLICYHOLDER.

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8/19/02
Yeah. That's it. Let's Blame it All on the Lawyers.

7/9/02
REFORMING TORT REFORM:
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6/19/02
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Federal Mold Bill is the Answer 

5/31/02
What's In A Name

5/6/02
ONE MAN’S GARBAGE IS ANOTHER MAN’S GOLD

4/22/02
TOXIC MOLD: The Best Thing To Hit Insurance In Years  

3/12/2002
Insurance: Another ENRON?

2/27/2002
Having a Horse in the Race

2/20/2002:
The Forest and the Trees

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