In August, I blogged about a new Lemonade article where they are allegedly giving consumers complete discretion to cancel their policies, drop spouses from coverage, eliminate landlords if named as additional insureds, etc. I explained why I thought this was a bad idea.

In addition, on one of the web sites where Lemonade posted their self-serving article, I posted my response (Lemonade’s comments are in bold type):

“Then, customers would need to pay for some changes, and probably get a new policy sent to them in the mail (snail mail, of course). That’s where the red tape and long wait times come in….”

Observation: So, the changes listed in the article wouldn’t in some cases result in additional premium? And what carrier mails an entirely new policy for changes as described in the article? This is nonsense and it is not an accurate nor an honest statement.

“As far as we know, no other insurance company allows its customers to modify their coverages or even cancel their policy on their own.”

Observation: If anyone actually CARES about the customer, why would they want to facilitate an untrained person to make a change that, unbeknownst to them, could create a serious exposure gap? So, Lemonade would allow, with no questions asked or intervention by customer service, one spouse to remove another spouse even if both are named insureds?

The insured, without question, can remove a landlord as an additional insured on a policy even if the lease contractually requires them to be covered? How many insureds read their leases or insurance policies? How many would know the potential liability they’re incurring?

This is why knowledgeable agents serve a purpose. Most insurance agents are required by law to pass examinations and engage in state-approved continuing education. How is a consumer who knows pretty much nothing about insurance supposed to make coverage decisions on their own without the training that state regulators require of agents?

“Even if you buy renters insurance directly from the likes of GEICO or Progressive, the only part that’s direct is taking your money and sending you a policy. Everything else requires customers to contact customer service — which we all know can be… painful. That sucks.”

Observation: What can be far more painful is the inability of an uneducated, ill-informed, and unsuspecting consumer to contact customer service in order to obtain the counsel and advice of a properly trained and knowledgeable insurance agent.

It sounds like Lemonade is adopting a practice that saves THEM a lot of time and lessens the need to hire competent insurance advisers and SELLING it as a benefit to consumers? In other words, Lemonade is reducing their workload, increasing consumers’ risks of loss, and making their customers thank them for it.

Who is the real beneficiary here?

A young industry newbie then rebutted my comment. Below is his rebuttal (in bold type) and my response:

“You sound like you’re saying what you’re saying because you have a direct conflict of interest. Are you an agent?”

No, not an agent. Here is my web site: www.InsuranceCommentary.com. I’m speaking from 48 years of experience in the P&C insurance industry, the last 28 working with agents from an educational and advocacy perspective. I know what good agents do for consumers and businesses and it’s usually not something they can do effectively for themselves unless they’re an experienced and highly trained risk manager.

“Anyway, to shortly rebut the crux of your argument. Customers who buy insurance aren’t stupid and they’re tired of being treated like they are. They don’t need their hands held by brokers and agents.”

Where in my argument did I even remotely imply that consumers are stupid? Ignorance and intellect are two entirely different things. A colleague posted yesterday on LinkedIn about working with a group of new attorneys. These are very bright people already making six figures right out of law school. These are people highly educated in contract law, with the insurance contract (aka, policy) being the foundation of the P&C industry. Given their background, he was astonished at their ignorance about the magnitude and scope of their own personal exposures to loss, much less how to insure or otherwise risk manage them. Few of them even have umbrella policies.

“We live in a time where information about virtually anything is available at our fingertips. Any gap in knowledge that a customer may have at the time, they can easily find on Google or a company website that actually communicates the products it offers clearly and concisely.”

Today, “big data” is becoming an increasing actuarial focus. I wrote an article on my website blog called “Big, BAD Data.” Information is worthless if it’s wrong and how is a consumer to know if it’s wrong, especially if the information appears on what is perceived to be a reputable web site? For example, an article on Forbes’ web site (and a bunch of other ones) is called “Fifteen Insurance Policies You Don’t Need.” Number 7 is “Flood Insurance” and the article says, “Unless you live in a flood plain or an area with a history of water problems, don’t even bother buying flood insurance. If none of the homes in the area has ever been flooded, yours is unlikely to be the first.”

How do you think a consumer on the Texas coast feels today if they read that and took it as good insurance advice. I can give you dozens of examples off the top of my head of bad information. One from years past involved the recommendation of a “financial expert” NOT to buy uninsured motorists coverage. The husband of a couple was killed by a UM driver and they successfully sued him from providing the bad information.

A similar article at bankrate.com lists “14 Useless Insurance Policies,” again including flood insurance unless you live in a flood plain or have a walk-out basement. Both articles recommend not buying the rental car loss damage waiver and I can give you example after example of claims from $1,500 to $15,000 involving damage to rental cars not covered by auto policies.

The consumer insurance website insure.com has a number of articles that have bad information or otherwise mislead consumers, from saying that a renter’s policy does not cover damage to the premises to recommending that people drop physical damage coverage on vehicles worth $16,000 or more. Yes, there is an incredible amount of information available on the internet, but how is the consumer to know what information they can relay on?

Insurance agents, GOOD insurance agents, are more than just middlemen. Through years of experience and training, they can ASSIST consumers in identifying exposures to loss and deciding whether to insure them or risk manage them in another way. In addition, insurance policies are complex legal contracts subject to varying interpretation. There are millions of pages of case law devoted to insurance lawsuits over policy language. If you insure direct with someone online or through an app, bypassing an agent, who is going to represent your interests when a claim is unjustly denied?

My work over the years has largely been with independent agents who represent multiple insurance companies. Legally, independent agents “own” the customer, not the insurer. A critical role of those agents is claim advocacy. In just my last 17 years working with agents, I’ve probably assisted in over 50,000 coverage or claim disputes where agents were fighting FOR coverage on behalf of their customers.

Lastly, insurance agents are required by law to pass examinations in order to be licensed and are required to take state-approved continuing education on a regular basis. Most good agents go far beyond regulatory requirements and pursue high quality educational programs and professional designations. If consumers don’t need agents to make their insurance purchasing decisions, then why are there formal education requirements for agents?

When I question the practices or motives of startups like Lemonade, I’m not bashing consumers or technology. I just know from 48 years in the industry that you can’t identify loss exposures and place insurance in 90 seconds as some of these “disrupters” claim. Consumers need to be told the truth.

“It is impossible for a man to learn what he thinks he already knows.” – Epictetus

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information

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