Why I FEAR simpler Insurance policy wording:
There is increased talk on sites like Linkedin by thought leaders, disruptors, and innovators about simplifying the insurance contract and wording so all people of varying education and experiences can easier understand. Many disruptors believe this is the key to beating the incumbents at their own game.
While I agree that the wording can be somewhat difficult to read (Amazingly difficult if you just had a big Turkey dinner, warm milk, and it’s after 9pm) and encourage incumbent insurers to consistently improve their customer experience, I also Fear simpler insurance policy wording.
I fear changes to the insurance contract for a few reasons:
The current contracts and ISO Forms have been court tested over years. These “tests” have produced reliable outcomes on what is covered vs. not intended to be covered. It allows for insurers to develop class rates and expected loss costs when there is no experience.
It would be a terrible sight to see that all lost or to have to be redone from beginning.
The courts historically have favored the buyer or consumer due to the one sided nature of contract drafting. Now who is favored in ambiguous wording? “We made it easier for the customer to understand, how’s it our fault they didn’t understand?”
Do we really want more of The blame game in the court system?
It takes deep pockets to defend or make payments due to ambiguous wording, definitions, etc. in an insurance contract. For those of you who haven’t had to experience the legal system as it relates to insurance defense, just wait and see how long cases drag out for. Think about the defense attorney fees, plaintiff fees, etc. Is this a good use of societies resources? Especially to reword, make it easier, for layman to understand?
If their was a systemic misunderstanding of the product, then I entirely agree.
Law of Unintended Consequences – what will be the true outcome of simple wording in contracts? Societal impact? Economical value gain or lost?
A “dumb-ing down” of our business (or society) isn’t needed. Contracts have evolved in all walks of life and society for a reason. See notes above about Court testing (or attorney self preservation). The business of risk should be simpler for both parties but for economic growth it is important for risk bearers to grow with the economic growth – hence I would argue maybe it’s better economically to make it easier for risk bearers to assume risk.
Our survey found some people don’t read their policy, not certain this would change if the policy was easier to read – many people spend more time on entertainment than Insurance. Rightfully so!
Amazingly talented Plaintiffs bar scares me. They have the ability to cloud a glass of water. What will they do to a simple insurance policy?
In non-commotidized or non-simple standard lines products, the 10-15% paid to a broker or agent is worth the money so consumers don’t have to learn the entire course of study of an agent or broker. They have other more interesting and exciting things to do with their lives. This isn’t a frictional cost, it’s a TRUE value add.
The saying “If it ain’t broke, don’t fix it” applies to many things: cars, home improvement, and insurance policy wording.