During Q&A following Robert Hartwig’s prepared remarks to the ICT Property and Casualty Insurance Symposium, an industry member posed the question: “In Texas there is a lot of talk about plain language in insurance policies. What are your thoughts? Can plain language explain this complex product?”
Hartwig, who earned his Ph.D. and Master of Science degrees in economics from the University of Illinois at Urbana-Champaign, tackled the politically thorny question with this reply:
“Who can’t be in favor of plain language? I mean, this is in favor of apple pie and America.
“But the reality of it is there is a reason why insurance policies read like a legal document. That’s because they are a contract, a legally binding contract, and they bind only on one party. They bind on the insurer.
“If you go and you look at policies that were written a hundred years ago, in the late 19th century, they literally fit on one page. And they seem to be fairly plain language. But over time, it seems the policies accumulate the effects of countless attempts to find coverage where none was intended.
“And so, each time that happens, that results in another phrase or a clause or a word or a sentence that tries to redefine the contract in a way that it was originally intended.”
Hartwig continued, “Again, the notion of plain language is wonderful. But the reality of it is somewhat more difficult. You talk about plain language in your insurance policy? Try to read your cell phone contract. I mean, that is impenetrable. Try to read the disclosure that Google or Facebook or Apple sends you occasionally that you just click on and nobody ever reads. So, now we are surprised that we have given away all our privacy? We’ve done that piece by piece, bit by bit.
“I think there are potential solutions here in terms (of) plain language; perhaps it is possible to attach a (plain language) executive summary . to get at the key points of what is covered, but also what is not covered.”
Still, it is the contract itself that would be the binding legal document, he added.
Next question: What can the industry do to better educate consumers and businesses on the insurance contract?
Hartwig replied: “In my Advanced Property and Casualty class, I spend a lot of time on contracts, and as you go through, particularly commercial contracts, you can understand why your average small and medium-size business owners don’t have the type of understanding of their contract that we would like them to have. You would have thought everybody would have the message about flood not being covered in a homeowner’s policy. Same thing in a business owner’s package policy. Yet, every time there is a flooding event, there are people and business owners who profess that they have never heard this before in their entire life.
“Clearly, while there are coverage gaps that emerge because people have no coverage or insufficient coverage, there is a clear knowledge gap. I know that for many years when I ran the Insurance Information Institute, we appeared on any network, any newspaper or any magazine or any online forum that would have us to bring that message. Unfortunately, memories are short. What somebody might retain or learn at some point in time, unfortunately, next time they enter into a property transaction, they don’t review the policy, and they don’t remember.
“I really think that there is a shared burden here on the part of consumers to be a wise consumer. But also on the part of producers, agents and brokers out there, and insurers themselves, to provide regular communication particularly at renewal or at the time when an individual is shopping for a policy to remind them of key issues with respect to what is and is not covered. This is a never ending perpetual problem.”
And a final question from Albert Betts, executive director of the Insurance Council of Texas: “What are your thoughts on full economic recovery? And I think by full, we mean at least getting back to pre-March 2020.”
Hartwig responded: “I think there is nearly a 100 percent chance that the economy will grow in 2021. And the reason for that is, irrespective of who wins the election, we are going to be able to shake off this stupor and to emerge from this semicoma that the economy has been put into as a result of COVID. The reason for that is we will begin to see hundreds of millions of doses of a COVID vaccine distributed in early 2021, if not very late this year. .
“I think in the second half of 2021, you’ll begin to see offices begin to operate more normally. You’ll begin to see a slow resumption of business travel. A resumption of more personal travel, including air travel beginning later in the spring. . And I think that has the opportunity to happen more quickly than people estimate.
“What we really need is the animal spirit to begin emerging. . The post-COVID economy is going to restore millions and millions of jobs, restore confidence and restore a more normal pattern of living. And when that is restored, people will be spending more, businesses will be spending more, and this will be like a very bad dream.”
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