Tag Archives: usaa

‘Innovation in Action’ Award Winners

SMA has announced the winners of the 2015 SMA Innovation in Action Awards, recognizing three insurers for truly ground-breaking projects and initiatives with demonstrable real-world impact. In conjunction with the announcement of the winners, SMA published a collection of case studies on all the insurer award submissions this year, showcasing the remarkable innovation taking place in the industry today.

The submissions for the SMA Innovation in Action Award ranged from the introduction of business models to the invention of creative distribution models, along with an array of technology projects that focus on the adoption of maturing and emerging technologies that position insurers to differentiate and win in the industry.

Last year, a chief characteristic of the winners was that they were using maturing technologies like telematics and cloud in unexpected ways to really differentiate their projects and solutions. That pattern shifted among the 2015 winners, who focused on initiatives using several emerging technologies in combination with each other or in combination with maturing technologies. Not long ago, the rate of adoption of emerging technologies that we saw this year would have been unthinkable. Now, insurers are clearly realizing the advantage of implementing emerging technologies in tandem with maturing technologies, as seen in this year’s insurer winners:

Haven Life Insurance Agency

Offers the first solution for purchasing medically underwritten term life insurance online. Haven Life users can calculate their needs, then apply for and start coverage on the Haven Term policy in about 20 minutes. Its sophisticated underwriting algorithms leverage external data sources to render an instant decision on applications. By reinventing the traditional, four- to six-week process of buying life insurance into an entirely online, 20-minute process, Haven Life has successfully streamlined how life insurance policies are sold, underwritten and administered.

The John Hancock Vitality Program

Offers a new approach to life insurance that rewards policyholders for the steps they take to promote their health and wellbeing. The program fosters a revolutionary bond between policyholder and life insurer using interactive emerging technologies like wearables and “gamification.” Activities, including exercise and annual health screenings, can be tracked via a mobile app, a dedicated website or a free Fitbit to earn Vitality Points that determine a member’s status for a broad range of rewards and premium savings.

USAA

Is a pioneer in the use of drones in the insurance industry, particularly in P&C claims following natural disasters. In collaboration with the nonprofit Roboticists Without Borders, USAA deployed drones after the Oso, WA, mudslides in 2014 to provide data and imagery to county officials to assist in rebuilding. USAA was also the first insurer to file a request with the FAA for permission to utilize fixed-wing drones for research and development.

These insurers are springboarding into the future with forward-thinking applications that use a wide range of different technologies to differentiate their offerings, the customer experience and company capabilities. Their winning initiatives demonstrate commendable examples of innovation in action.

Will Fintech Disrupt Health, Home Firms?

The integration of technology in the insurance company’s value proposition is turning out to be one of the main evolutionary trends in the sector, and digital initiatives have been for a couple of years now one of the priorities of insurance groups. Until today, though, they have brought only limited improvement when it comes to the competitive abilities of the insurer.

The best practices at the international level show that, to obtain concrete benefits, the innovation has to be directed toward clearly determined strategic objectives.

An interesting example is the American company Oscar – a start-up that in less than two years has managed to raise more than $300 million at a valuation of more than $1.5 billion. It has radically innovated the customer experience of individual health insurance policies by directing the innovation effort toward two key factors that are crucial for the profitability of the medical spending reimbursement business: deductibles and “emergency” visits.

Oscar has created an insurance value proposition based on a smartphone app that incorporates a highly advanced search engine – including a search based on symptoms – allowing the insured to identify and compare the medical structures part of the preferred network. In this way, the client receives support in optimizing direct spending before reaching the deductible; this basically postpones when the insurance company starts to pay and thus reduces the amount of spending (medical reimbursements) by the insurer for the remainder of the year.

The company addresses emergency visits by providing chat with a specialist and a call-back system that the insured can choose at will from inside the network. This represents a comfortable alternative and reduces the number of urgent visits.

Health insurance and connected health

In these last months, I have been considering how to replicate the motor telematics experience for the health insurance sector. Insurance companies see the benefits from a telematics black box and how the return on investment in this type of technology can be maximized by the insurer: This is possible by taking into consideration not only the underwriting of the car insurance policy but by also looking at the services provided to the client, at loss control and at customer loyalty. In health insurance, similar benefits are achievable by using mHealth devices and wearables.

The first element is risk selection, seen in car insurance as:

  • the capacity of auto selection and dissuasion of risky behavior,
  • the integration of static variables traditionally used for pricing with a set of “telematics data” gathered within a limited time and used exclusively for supporting the underwriting phase.

The creation of a value proposition that is focused on the use of wearables and that uses “gamification” makes the product attractive to individuals who are younger and healthier – generating a self-selection effect comparable to the motor telematics experiences. Oscar, since the beginning of January, has been offering clients a pedometer connected to a mobile app. Every day, the app shows a personalized objective that, if attained, means $1 earned by the customer. Each month, the customer can receive a maximum of $20 as cash back from the company.

The second source of value generation is services. The use of telematics data represents an incredible opportunity for offering new health services and for offering a better customer experience: for example, the geolocation of medical structures and doctors who are part of the network, linked to a medical reimbursement policy.

Medibank, of Australia, has integrated in its health policy (using a smartphone app) a series of services built on informative contents and advice. The services are medical – as done by the Italian insurance fund Fondo Assistenza Benessere, using an app called Consiglio dal Medico (an Italian start-up partnering also with Uber) – as well as related to wellness. Medibank, using this package of services, produced 10% growth in the company’s top line. This Australian player has created an app for noncustomers that gives access to wellness discounts and attracts customers who can later be offered other insurance, too.

The ability to provide health services with a high perceived value (from the client’s point of view) can also allow the company to increase the efficiency of guidance inside the preferred network – this is a crucial aspect for controlling the loss ratio of a medical reimbursement product. The loss control actually represents the third area of value creation, just as it does for the auto business.

Within the health industry, it will soon be possible to generate significant economical benefits employing telemedicine to optimize spending with medical reimbursements or to link the reimbursement to the actual observance of the client’s medical prescriptions. In the medium to long term, the objective is to have behavioral and contextual data to prevent fraud and early warning systems that can spot altered health conditions and that allow preventive and timely intervention.

South African-based Discovery has successfully tried out this second approach. It reduced the loss ratio of the cluster of insured who suffer from diabetes – mainly reimbursements linked to complications because of lack of self-control. Discovery provides an instrument for measuring the blood sugar level through a connected app and rewards the insured.

Discovery’s Vitality program represents the international best practice regarding the fourth axis of value creation: behavior guidance, by using a loyalty-based system that rewards non-risky behavior. The South African company has integrated – in its very complex reward system – devices for measuring physical activity and has incorporated their usage among the “rewarded” types of behavior. Discovery’s experience in several different countries proves the effectiveness of this approach in terms of:

  • commercial appeal
  • capacity to acquire less risky clients
  • ability to gradually reduce the risk profile of the single client.

Pricing based on individual risk is the last benefit achievable with the integration of wearables and health insurance policies. Constant monitoring of the level of exposure to risk lets the insurer create tariffs based on the health state, lifestyle and context of a person. As already done in the auto telematics business, this will be a goal to be attained after some years of data gathering and systematic analysis of the historical series together with information regarding medical reimbursements.

Home insurance and connected home

Homes are another area in which, at an international level, there has been experimentation with how to integrate an insurance policy with actual sensors. There already exists a replication of the business model used more than 10 years ago in the auto insurance sector — an up-front discount between 10% and 25% of the insurance premium based on installation of a device at the client’s house and by the payment of a fee for services or a lease for the technology. This approach, which has been adopted in the U.S. by State Farm, Liberty Mutual and USAA and in Italy by IntesaSanpaolo Assicura, BNP Paribas Cardif, Groupama e Poste, is based on two of the five levers of value creation: first, loss control – focused on flooding, fire and theft – and second, value-added services. American companies have even reached the point where they offer clients a wide range of services provided by selected partners (such as Nest) and tied to the home “ecosystem,” which can even include medical assistance services.

An interesting and innovative example of the use of such technology for the assessment and risk selection in home insurance is the one adopted by Suncorp with a retail touch to it, and by ACE Group, which focuses more on the insurance needs of high net worth individuals (HNWIs). Both companies have used a partnership with a start-up called Trōv – a smartphone app that allows registering and organizing the information referring to personal objects, including through photos and receipts – to evolve their underwriting approach when it comes to the risk connected to the contents of the house.

Domotics, or home automation, is growing at a high rate even in Italy and represents a material part of the revenues generated by the Internet of Things, according to data provided by the Osservatorio of the Politecnico di Milano. A horizontal domotics solution – with thermostats, smoke and water detectors, sensors present in appliances and other household items, sensors at the entrance and antitheft alarms, sensors spread within the building – would let an insurance company track the quantity and level of exposure to risk. This includes, for example, the periods and ways in which the home is used but also the state of the household and the external conditions to which it is exposed (humidity, mechanical vibrations, etc.).

The insurer could price based on individual risk, adopting pricing logic based on behavior, as already done in the motor sector. This could open up growth opportunities, such as for secondary houses used only for vacation and rarely insured. This scenario, which sees the growth of solutions built on connected objects within the home – if correctly approached by insurers by reviewing their processes to make the most of the potential offered by gathered data – can lead to important benefits in loss control: Some studies have estimated that there is the potential to cut in half the current expenses for claims.

To turn this opportunity into reality, it is essential that the insurer acquire the ability to connect its processes (through adequate interfaces) with the different connected objects. Insurers must create an open digital platform that uses the multiple sensors to be found in the home “ecosystem” – just like those used in the health sector.

The change of paradigm doesn’t only concern fundamental aspects of the technological architecture – like data gathering or standardization of data coming from heterogeneous sources – but affects the strategic choices of the business model. For insurers, it becomes a necessity to define their level of ambition for their role in the ecosystem and for their cooperation with other players to create solutions and services around an integrated set of client’s needs.

It is extremely interesting to see the journey made by American Family Insurance, which – in partnership with Microsoft – has launched a start-up accelerator focused on home automation.

Insurers have to start thinking strategically around how adapt insurance business to IoT, before some new Fintech comers do it.

This article originally appeared in the Insurance Daily n. 749 and n. 750 Editions.

3 Ways for Video to Reinvent Claims Work

There are lots of great technologies and innovative products being developed that can help redefine the future of the claims process. Most recently, real-time video has been taking its place among industry disrupters such as drones, the Internet of Things and telemetries.

We’ve seen Esurance, USAA and Erie Insurance adopting various video technologies. Yet, the use of video is still very narrow, focusing on real-time applications. In fact, there are three types of video capabilities, not just one, that can deliver a powerful opportunity to redefine the claims process.

Live or Real-time Video Streaming With the Insured

Live video streaming and video collaboration is one of the most critical pieces in being able to acquire a quick visual of the claim from the hands of the policyholder at first notice of loss (FNOL) or in any subsequent conversation. This technology has proven to drive significant efficiency savings by accelerating the collection of claim information, improving triage and even being able to estimate and settle claims remotely.

The largest impact of real-time video on the claims process is made by enabling quick resolution of small claims. Each organization defines its own thresholds for what defines a small claim, but typically any claim above a certain threshold will still trigger a traditional field loss inspection.

Yet, the insureds who are communicating from an area of poor connectivity or insureds who may not be comfortable using the video streaming technology to settle their claims will still require a field inspection. This is where there is an opportunity to apply video in another way to help streamline the field inspection process.

Field Video Claim Documentation

Unlike live video interaction, which is designed to help an inside claims professional see a transmission of what the policyholder is pointing at with a mobile device’s camera, video documentation focuses on a different problem – how to improve the field documentation process and accelerate the collection, delivery and preparation of the claim report.

A deeper look into the field operations shows that a field claims professional is overloaded with many responsibilities – traveling to the loss location, documenting the loss with pictures and preparing a report. With multiple assignments back to back, it becomes an almost impossible task to document and prepare a report one claim at a time. Instead, many claims are inspected with pictures and notes quickly taken on-site, and all the reports are prepared together once every day, every two days or even once a week. This approach delays the delivery of timely field information and hence delays getting the claims to closure.

Claim cycle time is critical in ensuring high quality of customer satisfaction. Video claim documentation breaks up the claims handling process in two. It allows field claim professionals to focus on getting to the customer and conducting quality on-site inspections. Meanwhile, the inside claim teams can focus on processing the claim as soon as video content is delivered. To enable this process, the field claims professionals simply document the claim in video rather than pictures, speaking freely as they capture the video of the claim. Think of it as “visual voicemail” for claims.

You may think that is nothing new. Everyone can take videos using smartphones. The challenge, however, is not whether video can be captured. The challenge is how the video content can be delivered into the business in a uniform and timely business process. This is where the right technological solution is needed to provide the means for field claims professionals to conveniently capture video in the field and deliver it to the inside teams. This means providing support for handling large video files, synchronizing video content, alerting about the arrival of new information and being able to support well-connected, low-bandwidth and “offline,” unconnected environments.

What if the customer has already captured the claim on video? This scenario identifies the next workflow – customer self-service.

Customer Self-Service Videos

Studies found that customers who participate in self-service during an issue that is well-handled experience higher rates of satisfaction. They feel that they have been a direct, significant contributor to the positive resolution. Hence, allowing the customer to deliver video claim information to the insurance company is a big opportunity to increase customer satisfaction.

Most customers capture loss information. Some take pictures. Others prefer to take video. Yet, most organizations do not have a convenient way to acquire large files from the customer. Typically, pictures are acceptable as long as they can be sent over email or uploaded online or through a mobile app. Acquiring a large video file from the customer frequently encounters technical limitations and requires a different approach.

To address customer self-service demands, it is important to account for two types of scenarios. First, imagine the customer calling to report the claim for the first time, before having recorded any visual information. In this scenario, the customer is instructed how to most effectively record the data and how to make the video available to the claims handling team. The second scenario provides the insured an ability to conveniently upload video of the claim to the organization after it has already been captured.

Takeaway

There are numerous additional workflows that can benefit from applying video capabilities, like underwriting, supplemental claims and contractor quality review. The key is that the right technological platform needs to be able to support all three key video workflows to cover the main scenarios that are encountered in the claims process. This includes not just providing the mobile technology to help capture or deliver videos to the inside claims teams, but also a convenient way for the inside claim handlers to receive, access and review the video content to complete the reports and settle the claims.

The Many Questions Raised by Drones

State Farm, AIG and USAA have received preliminary approval from the Federal Aviation Administration to test drones for their claims and underwriting functions. On the surface, this sounds like a straightforward proposition. Drones can more quickly and easily survey damage sites after fires, tornados and hurricanes than personnel on the ground. Drones can be equipped to use global positioning software to identify insured structures and take pictures of damage to better and more quickly inform ground-based adjusters, leading to faster settlements and good press for insurers. Drones might also be used by adjusters to reveal hail damage on roofs, which will help to mitigate falls and other injuries to adjusters. The thought is that drones also might be helpful in certain loss control activities, such as identifying otherwise hidden internal or external fire hazards to large structures or plants.

Small portable drones may also find bodies or even survivors in the aftermath of storms. Drones and their operators may see crimes such as looting or arson being committed.

But questions arise: What responsibilities will insurers now have to report crimes to the authorities? How quickly will insurers be required to report? Some drones may use live streamed images to ground-based operators; others may take static pictures that will be retrieved when the drone returns to base. Will the drone-equipped disaster adjuster be required to analyze these pictures immediately or send them to the authorities via Internet uplink as soon as they are retrieved? To avoid problems, should drones not be sent in until after all rescue efforts have ended? However, would this also not create an ethical issue about delaying the use of lifesaving tools because of possible legal complications?

What issues of privacy of customer information or stranger images will insurers face as a result of these new capabilities? For example, the camera is left on while the drone ascends the side of the building, capturing images of people in various stages of dress, seeing a man beating a woman on the 14th or witnessing people shooting up at a party in the penthouse. What must the adjuster report and to whom? What if the party in the penthouse is for diabetics and the adjuster reports this to police as a suspicious incident? Will the adjuster now need to add police investigative skills to competency requirements? How secure will these drones be from tampering if they should malfunction, or how easily can hackers intercept image transmission? Will they be equipped to hear, meaning they can record conversations that may have otherwise been thought to be confidential? In other words, will the drone engender additional responsibilities for the adjuster or will issues otherwise be covered by existing laws and regulations?

We can argue that the courts have agreed that our expectations of privacy with airplanes flying overhead is already reduced. However, airplanes and other commercial or pleasure craft rarely fly under 1,000 feet for any length of time. Commercial drones will operate at a much more personal, in-your-face, level; today they cannot fly higher than 400 feet. Will the courts react the same way as they have with aircraft to privacy concerns associated with drones?

Underwriters will want to use drones, as well, to survey large property complexes to establish baselines not only for pricing and capacity purposes but to provide claims adjusters with a before-loss picture of the property. Drones may also capture more than their own customer’s property. For example, the drone captures a picture or a video of a new product being tested in a courtyard of another business. The other business, fearing industrial espionage, calls the police and gives the clearly visible drone FAA-issued ID number to them.

Ground-based adjusters can trespass or go where they aren’t wanted. However, most are trained to get permission directly from owners and others before trampling on private property. I do not think we will see distantly operated drones knocking on doors, “Greetings human, I am seeking permission to scan your property…please sign here or just nod your agreement.”

Then again, there is the psychological. The convoy of multiple insurer trucks shows up at the town just after a devastating tornado. Up go the drones, circling like buzzards over the wreckage and the dead. Townspeople make rude gestures to the eyes in the sky and clamor after the trucks to gain anything, any image of a missing relative or friend. And the police and fire officials are there, too, crowding the adjusters for information. Will the insurers need to circle the wagons, be available all together to the authorities in an approved command post so that the authorities can gain immediate access to their images? The authorities might have some immunity if they arrest looters from these pictures, but will the insurers, for giving the authorities pictures of the alleged crime? Will the drone bring more frivolous lawsuits from perpetrators of crimes at disaster sites for invasions of personal privacy?

I do not want this to be a Luddite’s rant against drones. Far from it; drones have useful purposes. While drone capabilities were honed in war, their peaceful use should be considered. There is no reason why realtors, insurers, surveyors and others should not have a shot at making their case to use drones in the course of their legitimate business. However, there will be others who use drones in less than legal ways, and we must provide some guidance to insurers and others what constitutes legal and authorized use. We must also have means within each drone’s system that provide credible and legal evidentiary documentation of use: authorized, legal or not. Because the drone increases the field of vision for its user, issues of privacy and legitimate acquisition of images and other information by authorities needs to be spelled out. Disposal of drones must also be spelled out in regulations so that they or any remnant information are destroyed so that they do not get into the wrong hands.

The question isn’t whether drones will be used for legitimate business reasons; the question is when. Because they increase the visibility of their users, issues are raised in the area of privacy that require discussion and perhaps court attention. There is also the unknown, the psychological—the vulture drones over the tornado-stricken town. People in war zones have learned to fear the drones because they are harbingers of death. Granted, we have not experienced drone warfare in the U.S., but we know that they have been used as impersonal killers in other places. Unlike whirring helicopters and buzzing planes, they are small, quiet, can hover low to the ground and will interface with individuals. What will we think of the drone climbing outside of our apartment building with its dark camera lens pointed directly at us? Will we think Big Brother, or will we come to accept this new technology as we have the convenience store video camera or the red-light camera at the busy intersection?

These questions must be asked and answered to some satisfaction before we go trundling off and build vast drone fleets. The time is now, because after drones are deployed is not the time to understand that the user has increased his or her company’s risk of lawsuit and even criminal prosecution that has not been properly identified, assessed, and managed.

Select articles and studies of the issues associated with drones.

— Calo, Ryan. “The Drone as Privacy Catalyst.” Stanford Law Review Online 64 (2011): 29-33. Abstract: Associated today with the theater of war, the widespread domestic use of drones for surveillance seems inevitable. Existing privacy law will not stand in its way. It may be tempting to conclude on this basis that drones will further erode our individual and collective privacy. Yet the opposite may happen. Drones may help restore our mental model of a privacy violation. They could be just the visceral jolt society needs to drag privacy law into the 21st century.

— Cavoukian, Ann. Privacy and Drones: Unmanned Aerial Vehicles. Information and Privacy Commissioner of Ontario, Canada, 2012. Summary: The aim of this paper is to provide a background for general privacy readers, as well as for potential users or regulators of UAV activities, as they relate to the collection, use, and disclosure of personal information.

— Friedenzohn, Daniel, and Alexander Mirot. “The Fear of Drones: Privacy and Unmanned Aircraft.” Journal of Law Enforcement 3, No. 5 (2013): 1-14. Abstract: The article focuses on the consequence of the use of unmanned aircraft systems, (UAS) or drones, planned to be integrated by U.S. in the national space. Topics discussed use of the technology by military forces, confirmation hearings of disclosed by Central Intelligence Agency (CIA) Director John Brennan and degradation of privacy as a result of law enforcement’s relation with the use of the UAS.

— Pasztor, Andy, and John Emshwiller. “Drone Use Takes Off on the Home Front.” The Wall Street Journal, April 12, 2012. Issue Discussed: With little public attention, dozens of universities and law-enforcement agencies have been given approval by federal aviation regulators to use unmanned aircraft known as drones, according to documents obtained via Freedom of Information Act requests by an advocacy group.

— Wesson, Kyle, and Todd Humphreys. “Hacking Drones.” Scientific American 309, No. 5 (2013): 55-59. Abstract: The article focuses on the lack of safety measures in drone aircraft. It states that drones can be used in various settings, which include search and rescue operations, scientific research and power line monitoring. Also mentioned are the Modernization and Reform Act of 2012 issued by the U.S. Federal Aviation Administration (FAA), effectiveness of jamming devices in the navigation system of drones and the challenges to balance the economic benefits of drones. considering the public safety.

Has Auto Insurance Become a Commodity?

A boomerang kid lost his job and moved back home with his parents. While driving his mother’s car, he negligently struck another vehicle, causing several thousand dollars in property damage. The mother’s insurer denied the claim on the basis that the driver’s residency was not reported to the carrier within 30 days of his return home.

Fifteen minutes can save you 15%, anyone? Actually, the latest online ads say you can get a car insurance quote in only 7 ½ minutes.

Buying insurance may not be a pleasant task for most people, but neither is getting a root canal, and you wouldn’t choose a dentist based on how fast he or she can complete a procedure where your health is at stake. Yet consumers routinely risk everything they own and much of what they might earn in the coming years by choosing the fastest, lowest-cost insurance with the cleverest advertising campaign.

The denial of the boomerang kid’s claim arose from an exclusion in the insurer’s policy for accidents involving undisclosed household residents, unless the insurer had been notified within 30 days of the residency. What insured would think to report something like this to his or her auto insurer? If an “ISO-standard” policy had been in place, that wouldn’t be necessary.

At a rapidly accelerating rate via TV advertising, online “ease of use” promotion and proliferating media articles, consumers are being duped into believing that personal lines insurance is a commodity, with the only significant difference being price. Nothing could be further from the truth. While a lower price doesn’t necessarily imply lesser coverage, that is often the case.

In the words of sales legend Morty Seinfeld, “Cheap fabric and dim lighting. That’s how you move merchandise.”

What Does the Caution to Compare ‘Apples to Apples’ Really Mean?  (Hint: Nothing.)

Recently published studies by firms like McKinsey, A.M. Best, Nomura Equity Research and Gartner proclaim that auto insurance is now officially a commodity. Some of their conclusions predict the demise of the insurance agent, as the direct sales model wins the commodity war. Have any of these researchers ever read their own auto policies, much less compared the coverages in multiple policies?

The media perpetuate the myth. The typical “How to Save Money on Car Insurance” article cautions consumers to make sure they compare “apples to apples.” Translation: Make sure you’re getting quotes on premiums for the same liability, uninsured motorist and medical payments limits and physical damage deductibles. It’s as if broad coverage categories, limits and deductibles were the only differences between auto insurance policies.

A Wall Street Journal article, “Car Insurance Rate Shopping Can Pay Off,” says, “The Consumer Federation recommends consumers shop around to get quotes from insurers that don’t use agents, such as Amica Mutual Insurance and USAA (for families with military ties), and then ask an agent to beat the best price.” Not a word about any coverage differences—only the price.

More Proof That the ‘All Car Insurance Is the Same’ Mantra Is an Illusion

A Florida insured’s auto was in the shop, so she rented a car and later loaned it to someone, who loaned it to someone else, who had an at-fault accident that killed a child and seriously injured other children. The claim against the operator and named insured was denied by the insurance company on the premise that the vehicle was not a “temporary substitute” and that the operator was not a “permissive” user, as defined in this insurer’s personal auto policy.

The son of a friend of an agency owner was street racing when he crashed, seriously injuring himself and his passenger. The claim was denied by the insurance company based on its interpretation of its personal auto policy’s “racing” exclusion.

A church allowed a member to park his car in its heated “bus barn.” While exiting, he wrecked the car, causing structural damage to the building. The claim was denied by the insurer, citing the “care, custody or control” exclusion in the personal auto policy.

What do these claims have in common, other than denial from the insurance company? Each of them would have been covered if the policyholder had purchased an “ISO-standard” personal auto policy rather than the policy in question.

With regard to the Florida claim, the ISO personal auto policy defines “temporary substitute” and “permissive use” much less restrictively than the policy that was in force. The named insured might have saved 15% in 15 minutes when she purchased her auto policy, but it proved to be a bad deal when she had to take her claim to the Florida Supreme Court to recover. The Supreme Court did reverse the Court of Appeals ruling that favored the insurer, but the rationale was less about the policy language and more about Florida’s unusual dangerous instrumentality doctrine.

In the street racing example, the ISO personal auto policy excludes injury that arises from accidents that take place “inside a facility designed for racing,” while the auto policy in question excluded almost any racing activity, including on a public street. Fortunately, the father of the injured child had a Trusted Choice independent agent to aggressively advocate on his behalf by pointing out to the insurer that the exclusion applies only to organized racing activities, not impromptu street racing. More than a dozen coverage opinions from the Big “I” Virtual University Ask an Expert service supported the agent’s efforts. Do you think someone who purchased insurance online from “a guy in khakis” would enjoy the same advocacy?

Like the ISO personal auto policy, the “bus barn” claim also involved a “care, custody or control” exclusion. But the ISO policy makes an exception for damage to a private garage. The policy in question has no such exception—not to mention the fact it’s unlikely that the barn was actually in the driver’s care, custody or control. So both the policy itself and the insurer’s interpretation of the exclusion were faulty from the insured’s perspective—rendering the carrier’s slogan, “same coverage, better value,” untruthful.

12 More Nails in the Coffin of the ‘Insurance Is a Commodity’ Myth

Here are a dozen auto insurance exclusions or limitations you won’t find in the “ISO-standard” personal auto policy:

  1. Undisclosed household residents are excluded.  How many families have “boomerang” kids living at home whom they have not told their auto insurer about? An exclusion of this type was just recently added to the auto policy of one of the major TV advertisers.
  2. Business use of autos you don’t own is excluded.  Have you ever borrowed a neighbor’s car or made a business stop in a dealer loaner or rental auto?
  3. Business use of ANY auto is excluded.  Do you ever run to Staples or the post office on business for your employer?
  4. Use of ANY auto you don’t own is excluded.  Better not drive anyone’s car but your own.
  5. Vehicles weighing more than 10,000 pounds are excluded.  Have you ever rented a U-Haul truck or an RV for personal use thinking your liability coverage extended to the rental? With an “ISO standard” policy, it does; with some auto insurance policies, it doesn’t.
  6. Any type of delivery is excluded.  Denied claims include pizza, newspapers, Mary Kay cosmetics and, yes, even the delivery of insurance policies to customers by an agency producer. Google pizza delivery auto accidents and take a look at the catastrophic nature of some of them. Was that $50 you saved to buy a policy a good deal?
  7. Permissive users only get minimum limits.  This can apply to people who borrow your car or even unlisted household drivers.
  8. “Street racing” is excluded.  Google “street racing” and see how often people are killed or critically injured in the process. Does the auto policy covering your testosterone-fueled teenage son cover street racing? The “ISO standard” auto policy does.
  9. Criminal acts are excluded or limits reduced.  DUIs or even speeding tickets may preclude coverage.
  10. Medical payments only include licensed physician fees.  One insured incurred a $25,000 “life flight” helicopter fee that would not be covered, even in part, by a policy with this exclusion.
  11. Theft without evidence of forced entry is excluded.  One insured had a four-figure vehicle theft loss denied because he left his keys in the car. No such exclusion exists in the “ISO standard” personal auto policy.
  12. Sales tax is not covered under loss settlement.  This cost one “You get the SAME COVERAGE, often for less” insured more than $2,000 out of pocket for sales tax on a replacement auto.

Do you still believe what you’re told on the TV ads that the auto policy you’re getting a quote on is just like every other auto policy in the marketplace?

Accept the Challenge and Dispel the Myth

The differences between auto insurance policies are many, varied and potentially catastrophic. As insurance educator John Eubank, CPCU, ARM, says, “The bitterness of no coverage is remembered long after the sweetness of low price has been forgotten.”

Don’t be sold a bill of goods by TV advertising and consumer articles that state or imply that the only material difference between insurance policies is the price. It is time for insurance professionals to dispel this destructive myth. Innocent consumers experience catastrophic uninsured losses every day because they bought into the illusory proposition that their risk exposures can be identified and addressed cheaply and within 7 ½ to 15 minutes.

Failure to get this message to the consuming public is likely to lead to increasingly stripped-down insurance products that enable competitive pricing. Arm yourself with the information necessary to educate your clients, and bust the myth that insurance is a commodity.