October 4, 2019
Is Buying Insurance Like Ordering Food?
by Bill Wilson
No. Entering into a complex legal contract where significant assets are at stake is not remotely similar to ordering delivery of a burrito.
Recently, I read this article from a venture capitalist:
The following passage caught my eye:
“In a world where we can summon a car, or our favorite Mexican restaurant’s veggie burrito, at the touch of a button, shouldn’t we be able to get insurance cover for our homes by just providing our address?”
This question was reminiscent of one I blogged about two years ago when a “top insurance executive” asked, “If people can buy paper towels on the internet, why not insurance?”
The answer to the burrito question is: No. Entering into a complex legal contract where significant assets and income are at stake is not even remotely similar to getting a ride to the airport or ordering delivery of a burrito.
I got a homeowners quote from one of these new startups that, according to this article, “gets it,” simply by providing my address. According to the “big data” source, the square footage of the home was 1,200 sq. ft. less than it actually was. Think that might throw off the dwelling coverage limit? Yes, by about $180,000 in this case. A year later, I got a quote from the same startup, and the living area was over 1,000 sq. ft. MORE than it actually was AND the coverage limit was STILL underinsured.
I was told for “other structures” the insured had 10% of the dwelling policy limit. But apparently the startup was not aware that one of those structures, a $40,000 boat dock, was not actually on the “residence premises” (it was on Army Corps of Engineers property) and, therefore, according to the insurance contract was uninsured.
See also: Is Insurance Like Buying Paper Towels?
The startup didn’t ask about any activities the residents were engaged in like serving on an HOA board and a child’s school athletic booster club, which presented exposures that can be covered by some insurers with a policy endorsement. No umbrella coverage was offered. And the list goes on.
People who know NOTHING about insurance get all excited about the super cool technology, speed and convenience. That excitement lasts until there is a six-figure (or more) uninsured loss that could have been covered by engaging in proper exposure analysis beyond simply a street address.
Big data is one thing. Big BAD Data is another.