Is insurance jargon holding insurers back from selling more policies?
A customer-centered approach with simpler terminology may boost add-on policy sales.
Insurance policies are filled with confusing, albeit regulated, terms. It’s no surprise many homeowners have difficulty understanding their policies, but is this disconnect costing insurers? Would agents and brokers sell more policies if potential insureds weren’t bogged down by insurance jargon and legalese? It’s an interesting concept that Geoff Keast, vice president of sales at INSTANDA, thinks will help policyholders and insurance companies prosper.
“If people feel as though they don’t understand what they’re buying, they’re less likely to complete that transaction, and therefore, less likely to have risk protection,” says Keast. “If people actually understood what they have bought, they are perhaps more likely to want to engage with their insurance company [for risk prevention].”
Costly misunderstandings
A 2023 Forbes survey of 2,000 homeowners found that most policyholders don’t understand how their policy works, even though their premiums were higher than the previous year. The same survey found 18% of respondents were unsure if dog bite incidents were included in their policy, and 40% mistakenly believed their standard homeowners policy covers earthquake damage. Another 35% think homeowners insurance covers flood-related damage, and 19% had no idea their policy included kitchen fire damage.
The percentages above pinpoint costly misunderstandings that may strain the insurer-insured relationship and missed coverage opportunities, as some homeowners may add additional coverage if they understand their policy details.
Problematic language
Policyholders shouldn’t need to consult a glossary of terms to understand their insurance paperwork, and some may not read the lengthy document provided. Keast takes issue with the words “premium,” “deductible,” and “sum-insured.” These complicated terms could create barriers for people who speak English as a second language or younger generations purchasing a homeowners policy for the first time.
“When I think I’m paying a premium, it makes me feel like I’m paying more for something than I should or I’m paying a lot of money for something that I’m going to get a huge amount of value from… I think the word premium should just be changed to payment,” said Keast.
A perceived trick
Complicated insurance terminology may foster distrust among policyholders or potential policyholders because public perception often believes insurance companies don’t want to pay for damages and are trying to mislead insureds. “People that don’t understand things often perceive that they are trying to be tricked,” said Keast.
An INSTANDA report released in January 2024 surveyed thousands of U.S. and U.K. consumers and found 26% of respondents had difficulty understanding their policies, and 25% cited a lack of transparency regarding fees and premiums.
“[Buying insurance] is kind of a grudge purchase… It’s commonly perceived that insurers will do anything to not pay a claim, right? So immediately, people feel somewhat distrustful because there’s all this language that they don’t understand,” said Keast.
Simpler language, more policies?
Using simpler terminology in homeowners, auto, and other policies could increase sales by making insurance more accessible, notes Keast. Agents and brokers already explain insurance jargon to policyholders, but more straightforward language may help homeowners or businesses realize they need umbrella coverage or another add-on. What’s more, Keast believes this more transparent relationship could reduce losses because an educated policyholder is more likely to work with their insurer to mitigate risks because neither party wants to file a claim.
“I think there’s a real opportunity along lots of lines of insurance for insureds and insurers whose interests are aligned to try and prevent risks from actually taking place,” said Keast. “Make it accessible to more people, not just those that have an appreciation of what insurance should provide for them.”
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