9/9/2013

Is Policy Language a Major Hurdle to Selling Directly?

If policies offered online are too complicated for those outside the industry to understand, it might scare off a number of potential prospects.

By Sam Friedman

It’s encouraging to note that insurers may not have a major problem on their hands after all when it comes to whether small-commercial clients can make heads or tails of their policy language. That is very good news for the industry since misunderstandings over terms and conditions can lead to coverage disputes with carriers, errors and omissions claims against agents and brokers, and even bad faith lawsuits in a worst-case scenario.

You may recall that in September 2012 I wrote about participants in a pair of small-business consumer focus groups, run on behalf of Deloitte, having big-time issues with how their insurance policies were written. Most complained about the legalese, which discouraged them from even trying to read their policies in the first place.

“It’s written by lawyers for lawyers,” griped one focus group participant, who went so far as to suggest that insurance companies might be going out of their way to make policies overly complicated. “They are looking for a way out [of paying claims],” he explained. “So they leave lots of escape hatches.”

“Why can’t they communicate in plain English?” wondered another focus group attendee, who said his policies were so incomprehensible that they “might as well be written in Greek.” With a sigh, he added that he hoped his coverage wouldn’t turn out to be a Trojan horse filled with unpleasant surprises come claims time.

The focus groups were convened in part to discuss customer experience for the small-business segment. But the main goal was to explore potential interest as well as concerns consumers might have about buying small-commercial coverage directly from carriers over the Web without an agent or broker to shop for or advise them. Thus, the notion of not being able to understand the coverage they were buying emerged as a major potential sticking point for the focus group members, most of whom were otherwise fairly open to the idea of shopping online if it meant saving money on their insurance premiums.

In research, however, focus groups can be misleading because of the relatively small sample size. Despite this drawback, the exercise is valuable because researchers are able to establish a dialogue with focus group participants and receive more qualitative feedback than in an online survey. But before jumping to conclusions, it’s often wise to follow up with a much wider quantitative survey to validate any initial impressions from the focus group discussions.

In this case, the vast majority of insights generated from our earlier focus group research were verified by a follow-up survey of 751 small-business consumers representing a variety of industries and company sizes. It was conducted last March on behalf of Deloitte’s Center for Financial Services. The one area, however, where the survey results differed significantly from the earlier focus group findings involved this notion of consumers being unable to understand their small-business policies.

The numbers speak for themselves. Most respondents did not raise the language issue as a significant hurdle that might discourage them from buying their small-business coverage direct, without having an agent review their policies for them.

Indeed, when asked, “In general, how easy is it to understand the coverage terms outlined in your business insurance policies?” only 22 percent said, “somewhat difficult.” Just one percent described the language as “impossible to understand.” Ten percent said, “very easy” along with 25 percent who characterized the task as “easy.” Nearly half (42 percent) shrugged off the issue, checking “neither easy nor difficult.”

I also was surprised by the number of those surveyed who said they usually took time to read over their coverage. When asked how often they personally reviewed their business insurance policies, a whopping two-thirds said, “every year when I renew my coverage,” against only 15 percent who said, “sometimes” and 11 percent who said “rarely.” (Just two percent responded “only when I file a claim.” I certainly expected a much larger percentage here.)

But even among the minority of respondents who said they don’t regularly read their policies, only 27 percent blamed an inability to understand the language as a factor. The main reason cited was lack of time (46 percent).

Among the naysayers—about half of those surveyed who said they wouldn’t be likely to buy small-business coverage directly online under any circumstances—only 18 percent cited an inability to understand policy language among the top-three reasons why they would take a pass on this option, including only four percent who listed this as their main concern. And only 12 percent said the possibility of overlooking a potential exposure in their policy was the primary reason they wouldn’t buy without an agent.

So does this mean insurers don’t have to worry about the language they use in their policies? Not necessarily. Despite the inherent limitations of the focus group methodology, I would resist the temptation to reject the criticism raised in those forums out of hand.

For one, consider that by far the biggest reason given by the naysayers when asked why they wouldn’t be likely to buy small-business insurance direct—cited as number one by four in 10 surveyed, far higher than any other objection raised—was the feeling that “I would not trust an insurer to deal with me fairly without an agent or broker to represent my interests.” That could mean this consumer segment doesn’t believe carriers will make good on the coverage they promise or that they might quibble over a technicality in their policy terms and conditions to delay, reduce, or deny a claim.

In addition, selling small commercial directly is still a relatively novel concept. There are carriers adopting this model, but it is far from commonplace. While about one in five of those Deloitte surveyed had already shopped for such coverage online, the opportunity to actually conclude a sale over the Web remains rather limited in the U.S. market. Thus, most respondents were speaking theoretically. But that’s likely to change given the proclivity of more and more people to live their personal and business lives online and the likelihood that more insurance carriers will seek out customers over the Web.

To gain and retain the confidence of consumers shopping on their own without an agent, it would likely be smart to make policy language as clear and concise as possible. I realize the survey data indicated this might not be a big deal, but my gut tells me that individuals running small businesses aren’t going to have time to deeply review the details of the policies they are offered to make sure all the t’s are crossed and i’s dotted. 

If the small-business policies offered online are too complicated for those outside the industry to understand, it might scare off a number of potential prospects. The same goes for those buying auto, homeowners, or other personal coverages, for that matter.

In any case, the fact that so many individuals still depend on agents and brokers to check policies and make sure their business exposures will be covered likely means that those selling directly will need to have people in-house who are ready, willing, and able to answer coverage questions on the phone, over email, via texts, and even face-to-face through an online video connection. Such customer service reps should be properly trained, licensed as agents, and covered by E&O insurance.

However you slice it, wouldn’t it make more sense—and save the industry a lot of litigation, aggravation, and reputational risk—if insurers drafted simpler policies and supporting materials so they are easier for consumers to understand, regardless of whether they buy with or without an agent?   



Sam Friedman is insurance research leader with Deloitte’s Center for Financial Services in New York. He has been a Fellow with CLM since 2011, and can be reached at samfriedman@deloitte.com.

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