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, youd 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?
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