Now that I have your undivided attention.
Justice Potter Stewart famously said during a pornography case before the U.S. Supreme Court: ” I know it when I see it” (Jacobellis v. Ohio, 1964.) The same can be said about insurance coverage porn.
Since the idea of insurance coverage porn may be new, let me explain. I define it as creating a fanatic view of insurance coverage. An over-the-top, exaggerated, excitedly hyped or false illusion designed to distract, distort and divert attention from reality. The result is to leave sanity and common sense about coverage at the door.
Here are four examples that I’d like to explore:
1. Performing “Unnatural Acts” With Coverage
This is where someone tries to make a policy say, do or cover something that it was never intended to. While there are many different people and organizations who dabble in this type of insurance coverage porn, the real addicts are third parties. They require insureds and agent/brokers to include language on certificates of insurance to give them both additional money and assurance that they will be paid and paid first. Sometimes these unnatural acts require additional language on the certificate that is in direct conflict with the policy, not to mention insurance theory or regulation.
In many of these cases, the insured is at the mercy of the third party. Construction can be held up waiting for specific language or punctuation. A subcontractor cannot start work or get paid till the third party is completely satisfied. Truck drivers cannot go onsite until the certificate is signed off.
The simple fact is that the policy is a contract. It is what it is, and no amount of finagling on the certificate will change it. The certificate itself has a warning in CAPITALIZED BOLD print saying that it is informational only and does not amend the policy. Asking it to perform “unnatural acts” is insurance coverage porn, leading everyone to frustration, wasted time, energy and money.
2. The Big Tease, a.k.a. The Image Has Been Enhanced for Your Entertainment and Enjoyment
Many of our daily tasks and jobs require insurance. To drive a car, you need proof of insurance. To sell insurance, you need insurance. You need proof of insurance to renew many types of licenses.
Yet all you need is a piece of paper that says there is insurance. When I walk into the DMV to renew my vehicle registration, all I need is a driver ID card that says I have insurance. To use the auditorium or gym at the local high school, all you need is a piece of paper that says you have coverage. If you need to show proof of insurance to perform some kind of work, all you need is a completed form.
And the best, or worst, part is that most organizations requiring proof of insurance now tell you exactly what they need on their website. Now I know that this is done to be helpful, but it actually becomes a by-the-numbers “how to” guide to potentially perpetrate fraud. Some of these websites provide step-by-step instructions on what form they require, what numbers they need in specific fields, what wording is to be included.
It is beyond simple to Google and find all sorts of proof of insurance documents. Certificates, driver ID cards, company specific forms, you name it. Find the form, follow the web site instructions and you’re good to go.
One enterprising insured needed to provide annual proof of insurance for the coming calendar year. Taking the current forms, the insured employed Wite-Out to hide the dates and typed in new dates. The form was accepted, until an expert noticed that one of the forms had been out of use for a long time. This insured had actually been using Wite-Out for a number of years. It worked last year; let’s try it again….
Providing a form to prove insurance is one thing, but some organizations require even less. Some only ask that you check a box indicating that you have the appropriate insurance. The bar can be set even lower. One executive told me that while his insurance agency relationship demands that he purchase E&O insurance, the executive’s organization does not ask for any proof or indication that insurance is in place. The organization simply assumes that it exists. I wondered if this is the insurance equivalence of, “Don’t ask, don’t tell.”
3. Coverage Cover-Up, a.k.a. I Buy the Magazines for the Articles, Not the Pictures
Insurance applications used to be on paper. This meant that agents and the insured wrote down information for carrier personnel to rate/quote policies. Agents and insureds could not repetitively manipulate information, trying to get a better price without a paper trail. Today, both agents and insured have direct access to websites and carrier systems to speed quoting, eliminate paper and reduce cost.
Now, no one in their right mind is suggesting going back to paper applications, but think about what is now possible. Whoever is entering information has the opportunity to “tweak” amounts and drop down selections, options and other information to reduce the premium. Unless the software prevents repeated updates, it’s like giving the user an unlimited number of pulls on a slot machine until the right number comes up.
One agent was trying to insure a very nice log cabin home for his customer. You know, the ones pictured in magazine ads. But his traditional insurance carriers would not accept the risk, which was outside normal underwriting guidelines. Finally, out of frustration and needing to get the house insured, the agent changed the construction type from “log” to “frame.” The risk was accepted, and a policy was issued. Later, the home caught fire and burned to the ground. You can imagine the claims adjuster’s surprise, expecting to see the remains of a frame house. Regardless of whether the insured properly stated what the construction type was, the agent knew, so the carrier paid the resulting $540,000 loss. This payment was immediately followed by a claim against the agent under his E&O policy.
4. Scantily Clad Coverage Cover-Up, a.k.a. Bait and Switch
Having an agent manipulate information is one thing, but giving direct data entry to the insured opens up greater opportunities for insurance coverage porn. One study confirms that 51% of insureds are willing to misrepresent their insurance information to get a better personal auto price. Think about that for a moment. What other industry has a business model where more than half of their customers admit to not telling the truth?
Here’s another example. Anonymous national surveys find that about 16% of the general population smokes. So how come, on health and life insurance policy applications, only 7% record that they smoke? Health insurance carriers charge 50% more for individuals who use tobacco on a regular basis. Everyone knows that they have a better chance of being accepted, and getting a lower premium, if they deviate from the truth. This is insurance coverage porn.
With their desire to make writing policies easy for consumers, carriers have invested significant time, energy and dollars into their web sites and mobile apps. And while they are to be congratulated for making insurance more accessible, one unintended consequences is that applicants may be able to manipulate data to reduce the price.
Justice Stewart may have known it when it saw it, but that isn’t enough in insurance, where we need to exercise leadership within our organizations and throughout the insurance community. The “we’ve always done it this way” attitude is an open invitation for another person, another organization to take our customers, marketplace position and distribution channels.