According to University of Minnesota law professor Daniel Schwarcz, who moonlights as an NAIC-designated "consumer advocate," a consumer shopping for homeowner's insurance is unable to compare different insurers' coverage terms because neither companies nor agents will provide the forms or disclose accurate information about contract terms unless the consumer buys the policy. State insurance departments are of no help, either.

These assertions are based entirely on a recently published law review article that Schwarcz wrote. In a nutshell, Schwarcz's narrative goes like this: There is a widespread myth that all homeowners' insurance policies contain standardized coverage terms developed by the Insurance Services Office with little or no variation among different companies' policies. In fact, many companies, especially large multi-state writers, have increasingly deviated from the ISO standards. Sometimes, this results in more generous coverage but more often, the policy language has been tweaked to narrow the circumstances that would constitute an insured loss.

If every insurer sold the same coverage, the only grounds for preferring one insurer over another would be price and service. It wouldn't make sense for consumers to pore over the policy forms of different companies before deciding which one to buy. But that, Schwarcz notes, is not the world we live in. The substantial variations in coverage terms among competing companies means that coverage, and not merely price and service, should be an important consideration in choosing which company to buy from.

Schwarcz sees only sinister motives in the failure of most insurers to make policy forms available prior to purchase. They are "exploiting consumer ignorance to ratchet back coverage" and "have actively hidden and obscured this trend, in notable contrast to the comparatively transparent marketing of the few carriers who have departed from standardized policies to improve coverage." Moreover, the standardized policy form myth "explains regulatory rules that do nothing to promote insurance contract transparency."

It also "explains the ignorance of most information intermediaries [i.e., insurance agents] about the details of contract terms." Indeed, "many insurance agents are both unaware of potential differences in coverage among carriers and unfamiliar with many details of the coverage they sell."

One might think that these inflammatory charges would be supported by a large and convincing body of evidence, but the evidence presented by Schwarcz is thin. Readers of this magazine will no doubt be interested in the supposition that agents are ignorant of the policies they sell, so let's focus on that.

Schwarcz says he interviewed 11 agents—seven captives and four independents—in four different states. He conducted five interviews in person with agents from Minnesota, his home state. He interviewed the other six by telephone. Of these, four were from Illinois, one was from Nevada, and one was from Pennsylvania. Schwarcz doesn't indicate how these 11 individuals were selected, but it hardly matters because even the most sophisticated survey research methodology would not be capable of identifying 11 people who could plausibly serve as a representative sample of the more than 400,000 agents operating in the U.S.

Related: Read the article "NAIC To Review Personal Lines Contract Transparency" by Mark E. Ruquet.

As for the content of the interviews, Schwarcz asked his 11 agents "whether they believed that carriers' policy forms differed in their generosity." He next asked about "the coverage provided by the policy forms they sold," with particular reference to a list of contract arcana that included concurrent causation, affirmative coverage grants, increased risk clauses, mold and pollution coverage, collapse coverage, coverage for property damage from artificially generated electrical currents, coverage for increased costs due to an ordinance or law, water damage from off-premises sources, the definition of an "occurrence," and liability stemming from illegal consumption of alcohol.

Instead of providing summaries or even verbatim transcriptions of each interviewee's responses to specific questions—which would have been easy enough to do, given that so few agents were interviewed—Schwarcz simply reports that the agents provided an explanation of coverage "that was almost always incomplete and, in several instances, incorrect." Interviewees are quoted only when their utterances provide grist for Schwarcz's mill, such as the captive agent who said, "I know just enough to be dangerous, but that's all the insurance company wants me to be."

What exactly is going on here? First, it is important to note that law review articles often lack the scholarly rigor of articles published in the professional journals of traditional academic disciplines. Law review articles are selected for publication by student editors and are generally not subject to professional peer review. Moreover, law professors generally have no advanced degree beyond a law degree and no training in quantitative research methods. Their formal education is generally the same as that of every other lawyer: they have been trained to perform as advocates in an adversarial legal system.

In contrast to more scholarly disciplines, there is no expectation that the authors of law review articles approach their subjects from a neutral perspective. The purpose of legal research is not so much to test hypotheses as it is to present arguments in support of, or against, a certain proposition. Schwarcz's agent interviews, then, are best understood as a set-up in which a lawyer attempts to plead his case by playing gotcha with a handful of unsuspecting agents.

There is not enough space here to provide a detailed assessment of Schwarcz's indictment of insurance companies with respect to policy transparency. Suffice it to say that the story he tells is hardly cause for alarm. Schwarcz examined the policy forms of 24 insurance groups operating in six different states. He compared various contract provisions and discovered numerous deviations from the ISO HO3 form. While none of the companies in these groups made their policy forms available to consumers on their websites or through their agents, those offering "more generous" coverage did tend to provide a considerable amount of detail trumpeting that fact on their websites and in their marketing materials. Those offering "less generous" coverage tended to be more reticent. This is hardly surprising or scandalous.

Related: Read the article by Arthur D. Postal "Insurer Exec, Consumer Advocate Debate Dodd-Frank Provisions Before Congress."

First, it is at least arguable that consumers benefit more from a detailed description of the various coverages and exclusions contained in the policy form, rather than being overwhelmed by the raw policy form itself (which is necessarily complex, as even Schwarcz acknowledges).

Second, it seems reasonable to view insurers' behavior, both with respect to the relative generosity of the coverage they offer as well as how forthcoming they are about it, as a function of consumer demand. Homeowners' insurance markets are intensely competitive in nearly every state; to the extent that an insurer provides consumers with information they regard as useful (which may or may not be the same information that Schwarcz thinks they should have), that insurer will be rewarded with increased market share. Insurers who decline to provide such information will, all else equal, see their market shares decline. In short, consumers can vote with their dollars to demand the kind of policy information they want before purchasing coverage. Absent market failure, there is no economic justification for regulatory intervention in the domain of policy transparency.

That does not mean that Schwarcz will not find a receptive audience among policymakers. For that reason alone, insurance agents and the companies whose policies they sell should not take Schwarcz's accusation lightly. In addition to his advocacy at the NAIC, Schwarcz has delivered his broadside in testimony before the U.S. Congress and in interviews with numerous mainstream news outlets. He has raised the specter of a new class of "insurance intermediaries," consisting of soi-disant consumer advocates and magazines such as Consumer Reports, who, armed with policy forms, will "police the market" by imposing "reputational fines" on insurers whose contract terms they deem insufficiently generous. The effect, if not the intent, would surely be to discredit insurance agents as reliable intermediaries, marginalizing them in the insurance buying process.

Thus far, the agent community has been strangely silent in the face of this attack on the competence and integrity of its members. The question is whether they can afford to remain so.