J. Robert Hunter, insurance director of the Consumer Federation of America, is challenging state regulators to ban the anti-concurrent-causation clause that left many people with both water and wind damage from Hurricane Katrina up the proverbial creek. He contends the clause is impossible for average consumers to understand, while unfairly denying homeowners coverage for clear wind-related losses. What do you think?
(For the full story behind Mr. Hunter's latest campaign, click here.)
Always colorful and dramatic in his quest to make insurers do right by their usually clueless customers, Mr. Hunter said the ACC clauses “are creating a trap door through which apparent coverage can disappear at great risk to the consumers buying their policies.”
He concluded his letter to state insurance commissioners by opining, not incorrectly--indeed, it is the strongest point of his missive--that “insurance is supposed to remove risk, not create risk. Insurance is supposed to bring certainty, not financial peril to the buyer.”
Is it true, as Mr. Hunter charges, that “the ACC clause is inherently ambiguous, no matter how clear the words are"? He said that "no policyholder would believe that a trustworthy insurance company would construct a policy that was so deceptive and such a bad deal.”
Mr. Hunter argues that “surely it is terrible public policy to allow this sort of policy provision to exist, ticking like a time bomb, waiting to go off in the face of unsuspecting customers. Insurance policies should either fully cover a peril or not cover it at all. No surprises should be built in.”
Of course, insurance bigs do not agree. Robert P. Hartwig, president of the Insurance Information Institute, said carriers priced their coverage without flood coverage in mind. Therefore, “if a home is destroyed by an excluded peril like flood, but the damage occurred in connection with another peril like wind, you’d effectively be saying that in effect, flood coverage is provided.”
Robert Detlefsen, vice president for public policy at the National Association of Mutual Insurance Companies, added that “stripping anti-concurrent causation clauses from insurance contracts would prevent insurers from managing their exposures, forcing them to either raise rates or exit markets in jurisdictions where the ACC is disallowed.”
In reading over some of the ACC language cited in Mr. Hunter's letter, I certainly couldn't make heads or tails of it, and I cover the insurance industry for a living. While homeowners policies usually state prominently, often in BOLD TYPE, that THIS POLICY DOES NOT COVER FLOOD-RELATED LOSSES, people might still not be clear about what happens when a hurricane blows off your roof AND floods your first floor.
There has got to be a better way, don't you think?
In yesterday's blog entry, I suggested it might be time to revisit the notion of including flood in standard homeowners coverage (if actuarially-sound rates are permitted--a big if, I know). The inevitable confusion caused by the ACC clause certainly bolsters that argument.
But would it solve the problem? Or would it make it even harder to get coverage in catastrophe-prone markets?
Best bet for consumers, BUY FLOOD INSURANCE!!!
However, I also say if you must keep the clause, at least write it in English so plain that no one could fail to understand its meaning.
What do you folks think?
Comments (4)
The intent of insurance was to lessen risk. One can choose to pay for whatever risks they wish to allay.
Why expect a contract to cover something you agreed you did not want to pay for?
How about a simple policy with a list of "I want" or "I don't want" in plain language with a concurrent price list? Too simple?
Posted by Marc Dubois | July 20, 2007 10:27 AM
Posted on July 20, 2007 10:27
The anti-concurrent-causation clause is logically absurd, ethically wrong, and simply another symptom of a systemically dysfunctional industry applying random measures in an attempt to overcome structural flaws.
The insurance industry needs to strip away all the baggage and get back to the fundamental mission of protecting client assets by offering a policy that provides required coverage for equitable rates, all of which begs for an all-perils approach.
Marc Dubois stated it most eloquently, "How about a simple policy with a list of 'I want' or 'I don't want' in plain language with a concurrent price list?"
That achievement first requires a fundamental change in how consumer rights are viewed by legislators, regulators, insurance companies, and those organizations that are mired in protecting the status quo.
Posted by Edward Kalbaugh | July 20, 2007 3:44 PM
Posted on July 20, 2007 15:44
The worst destruction is caused by the combination of wind and surge, and it often is not possible to distinguish the wind damage from the flood damage. Insurers already take the benefit of the doubt, even without ACC, and assume flooding unless the policyholder can prove otherwise.
If wind gets a free pass from ACC language, that leaves only two options:
Either flood insurance should cover both the wind damage and flood damage, or it is absolutely impossible for a property owner to buy insurance that will cover all the damage if both wind and flood contribute.
The right thing to do is cover wind and flood in a single policy. If the industry does not want the government to do it, then the industry has to do it.
Posted by Brian Martin | July 22, 2007 1:35 PM
Posted on July 22, 2007 13:35
Here is an e-mail I just recieved that shows it is not just flooding that insurers say knocks out coverage:
"...regulators should abolish all anti-concurrent causation clauses. I'm a risk management consultant who negotiates complex insurance claims for corporate policyholders. I also serve on my homeowners association board. On behalf of my homeowners association board, I am in the midst of battling an insurance claim...
"Our homeowners association experienced some vandalism to the lake in our subdivision, which resulted in the retaining wall around the lake being damaged. Vandalism is a covered cause of damage.
"However, [the insurer] is relying on the concurrent cause language in the policy to argue that the water exclusion and the earth movement exclusion prevent coverage. It's ridiculous."
It really is ridiculous, don't you think?
Posted by Bob Hunter | July 25, 2007 11:18 AM
Posted on July 25, 2007 11:18