The Complexity of Insurance Options: A Lesson from Fast Food Menus

[Al3x Lee]

Hey fellow P&C forum members (The best and most intelligent forum),

Today, I'm speaking to you not as an insurance expert, but as someone who has witnessed the growing complexity of the insurance industry and believes that it's time for a change. I want to draw a parallel between the world of insurance and the notion of simplicity, and I want to propose a bold idea – let's simplify insurance.



You know, back in the day, when my dad started in insurance, the policies were much less complex, like the menu at Mcdonald's used to be. But now, the choices seem endless, and it can be overwhelming to navigate the insurance landscape. Multiple policies, riders, deductibles, and coverage tiers leave us dazed and confused. It's as if we've replaced the simplicity of a cheeseburger with a menu of a thousand ingredients, each with its own price and value.

Imagine a different path – one that leads us toward clarity and simplicity. Imagine if insurance companies took a page out of In-N-Out Burger's playbook. In-N-Out has a limited menu, and they do it exceptionally well. They focus on the basics and deliver quality, freshness, and simplicity. So, how can we apply this idea to insurance?



Let me introduce you to the amazing, simple oasis known as Actual Cash Value (ACV). It's like ordering a plain cheeseburger at a gourmet burger joint – you know exactly what you're getting, no frills attached. You make a claim and get back what your stuff is worth – what a concept!

It's been argued that this simple concept can't be applied outside of property insurance, but the detractors have yet to make any headway on proving that you can't put a value on human life. In fact, many of the detractors on insurance-forums.com come from the life & health insurance community. Their logic proves hypocritical, as they put values on people's lives all day, yet they argue that things should be calculated differently for casualty insurance.

Simplifying insurance with Actual Cash Value isn't just a practical idea; it's an inspiring one. Imagine a world where insurance isn't about deciphering pages of fine print but is about peace of mind and reliability.

 

[Tahoe Ray]

Hey fellow P&C forum members (The best and most intelligent forum),

Today, I'm speaking to you not as an insurance expert, but as someone who has witnessed the growing complexity of the insurance industry and believes that it's time for a change. I want to draw a parallel between the world of insurance and the notion of simplicity, and I want to propose a bold idea – let's simplify insurance.

View attachment 10245

You know, back in the day, when my dad started in insurance, the policies were much less complex, like the menu at Mcdonald's used to be. But now, the choices seem endless, and it can be overwhelming to navigate the insurance landscape. Multiple policies, riders, deductibles, and coverage tiers leave us dazed and confused. It's as if we've replaced the simplicity of a cheeseburger with a menu of a thousand ingredients, each with its own price and value.

Imagine a different path – one that leads us toward clarity and simplicity. Imagine if insurance companies took a page out of In-N-Out Burger's playbook. In-N-Out has a limited menu, and they do it exceptionally well. They focus on the basics and deliver quality, freshness, and simplicity. So, how can we apply this idea to insurance?

View attachment 10246

Let me introduce you to the amazing, simple oasis known as Actual Cash Value (ACV). It's like ordering a plain cheeseburger at a gourmet burger joint – you know exactly what you're getting, no frills attached. You make a claim and get back what your stuff is worth – what a concept!

It's been argued that this simple concept can't be applied outside of property insurance, but the detractors have yet to make any headway on proving that you can't put a value on human life. In fact, many of the detractors on insurance-forums.com come from the life & health insurance community. Their logic proves hypocritical, as they put values on people's lives all day, yet they argue that things should be calculated differently for casualty insurance.

Simplifying insurance with Actual Cash Value isn't just a practical idea; it's an inspiring one. Imagine a world where insurance isn't about deciphering pages of fine print but is about peace of mind and reliability.

You present a great metaphor and a well-thought-out premise.

However, your post has made me think about how I'm currently hungry. I live 10 minutes from an In-N-Out so now I'm going to lunch.

Thank you for your post.

 

[marindependent]

Simplifying insurance with Actual Cash Value isn't just a practical idea; i

You make an excellant argument. However, I do have a few questions.

1. Just like In and Out, will a Secret Menu of Insurance be available to only those that are aware?
2. Will legions of well trained 15 year boys and girls be conscripted into hard labor selling this simplified form of insurance?
3. Will this simplified form of insurance be based only where it is locally sustainable?
4, Will a small cabal of mysterious owners control this simple form of insurance?
5. Will this insurance only be availble in the West? Will visitors from the Easy Stop at this insurance offering on their way to visit you when they come to California?
6. Will Ricardo Lara allow it? What will United Policyholders think of this?

Thank You Al3x- you have my vote!

 

[adjusterjack]

Simplifying insurance with Actual Cash Value isn't

so simple.

The excess/surplus lines company I retired from wrote the majority of homeowners and fire policies with ACV. By the time people got to us because of adverse claims history they couldn't afford anything but ACV coverage.

Adjusting for ACV is actually more complicated than adjusting for Replacement Cost.

With Replacement Cost - Oh, your TV got stolen. How much does it cost for another one just like it? Here's your money.

With ACV you start by understanding that EVERY (and I emphasize EVERY) manufactured item on the planet has a different useful life to which depreciation has to be applied in order to calculate ACV (which is defined as Replacement Cost less Depreciation).

See the depreciation schedule on Page 97 in the following IRS publication.

2022 Publication 946 (irs.gov)

And that's just for business property. Consumer goods is something else again.

ACV is made even more complicated because people often lie about how old the item is so that they can get less depreciation applied. I can't count how many times I got told that everything that got stolen was bought last Christmas. It's a little easier with damaged items because they can be seen and looked up online quite often.

The insurance buying consumer can buy ACV or RC any day of the week. That's not going to make insurance any simpler because the policies are dozens of pages long, filled with all manner of legalese that the consumer doesn't understand, even if they bother to read it.

My solution to the complicated homeowners policy is this simplified plain English policy which I submit for your amusement.

PLAIN ENGLISH HOMEOWNERS POLICY

For a period of ___year(s) ending promptly at midnight, Standard time on ________________

Property Location:_____________________________________

AMOUNT OF INSURANCE YOU BOUGHT: $___________________ BLANKET ON YOUR HOUSE, ALL THE ACCUMULATED FURNITURE AND STUFF INSIDE YOUR HOUSE, YOUR GARAGE (the one where you park your car, not Al's Body Shop) AND ANY OTHER SMALL BUILDING ON THE LOT, AND WHAT IT COSTS EXTRA TO LIVE WHEN YOUR HOUSE IS BURNED DOWN OR SOMETHING LIKE THAT HAPPENS, FOR SO LONG AS WE SAY IT'S OK.

WE ALSO WILL DEFEND YOU IN COURT IF SOMEBODY MAKES A CLAIM AGAINST YOU, OR PAY THE DAMAGES, AND WE'LL PAY THE MEDICAL BILLS OF SOME PEOPLE WHO GET HURT ACCIDENTALLY AT YOUR PLACE, OR SOME OTHER PLACE.

(We could spell it all out in detail, but you wouldn't understand one word of it anyway. We had to hire ten lawyers just to figure this out after we wrote it!)

CONDITIONS:

1. If anything happens and it looks like it's going to cost you money, call us right away and we'll tell you if we're apt to pay for it.

2. Our agent has already told you this is the new "all risk" policy, but even he doesn't know what he's selling, so if you have any questions, call or write to us, not some insurance salesman.

3. Don't lie to us about what happened or how much something cost or how new it is or how it never leaked before. If you try to snow us, we'll not only cancel this policy so fast it'll make your head swim, we'll pass the word around and you won't ever be able to get an insurance policy again short of the Hong Kong Mutual. There are so many regulations, and an Insurance Commissioner who thinks he's king, that we can't lie to you. So don't you give us any song and dance or we'll land on you hard.

4. Replacement Cost: forget it. You don't need it. We'll pay what we say is fair with or without any "Replacement Cost coverage," and we don't care what your neighbor's policy has on it.

5. The "AMOUNT OF INSURANCE YOU BOUGHT" listed above is the absolute cost we will pay no matter what your house and other stuff is worth or however many people sue you for any one accident, so you'd better be sure you have bought enough to cover the worst disaster that you can imagine. Don't depend on our agent for this! If he had any imagination, he'd find an honest occupation.

6. Don't bother us with a lot of questions about what is and isn't covered by this insurance. We'll tell you when you need to know. If we told you now you'd forget it in an hour, if you ever understood it in the first place.

7. YOUR DUTIES: (1) Pay the premium, and (2) call us right away when you think something's happened (don't try to analyze it, just call in.) That's all you gotta do. Don't try to get cute; see (3) above, in case you have forgotten already (which doesn't surprise us.)

8. If we think of any additional conditions, we'll let you know. By the way, if what happens involves a vehicle, airplane or boat or has to do with your job, forget it; don't call us; we don’t cover it.

 

[Al3x Lee]

You make an excellant argument. However, I do have a few questions.

1. Just like In and Out, will a Secret Menu of Insurance be available to only those that are aware? The secret menu at In and Out is a lie, don't believe anyone who tells you otherwise
2. Will legions of well trained 15 year boys and girls be conscripted into hard labor selling this simplified form of insurance? Of course, insurance will become so simple, anyone can sell it
3. Will this simplified form of insurance be based only where it is locally sustainable? TBD
4, Will a small cabal of mysterious owners control this simple form of insurance? Yes, that won't change, The small, secret cabal of mysterious owners will continue to meet in dimly lit back rooms, swirling brandy in crystal glasses while plotting the insurance world's next secret move.
5. Will this insurance only be availble in the West? Will visitors from the Easy Stop at this insurance offering on their way to visit you when they come to California? The country will be split down the middle. West coast will receive simple ACV insurance and East coast will retain RC (For now), as proof of concept. Of course ACV is better, but it's to quell the naysayers
6. Will Ricardo Lara allow it? What will United Policyholders think of this? Ricardo Lara, the gatekeeper of all things insurance in California? United Policyholders has already set up a taskforce to investigate why this hasn't been implemented by him already

Thank You Al3x- you have my vote! - Thank you!

so simple.

The excess/surplus lines company I retired from wrote the majority of homeowners and fire policies with ACV. By the time people got to us because of adverse claims history they couldn't afford anything but ACV coverage.

Adjusting for ACV is actually more complicated than adjusting for Replacement Cost.

With Replacement Cost - Oh, your TV got stolen. How much does it cost for another one just like it? Here's your money.

With ACV you start by understanding that EVERY (and I emphasize EVERY) manufactured item on the planet has a different useful life to which depreciation has to be applied in order to calculate ACV (which is defined as Replacement Cost less Depreciation).

See the depreciation schedule on Page 97 in the following IRS publication.

2022 Publication 946 (irs.gov)

And that's just for business property. Consumer goods is something else again.

ACV is made even more complicated because people often lie about how old the item is so that they can get less depreciation applied. I can't count how many times I got told that everything that got stolen was bought last Christmas. It's a little easier with damaged items because they can be seen and looked up online quite often.

The insurance buying consumer can buy ACV or RC any day of the week. That's not going to make insurance any simpler because the policies are dozens of pages long, filled with all manner of legalese that the consumer doesn't understand, even if they bother to read it.

One of the hardest things when you're trying to affect change is that people like @adjusterjack are right, in some areas. I'm sure there are things that RC does, even more, that I'm not familiar with, that make life easier for adjusters and some policyholders. The problem is, how does that fit into a cohesive, larger vision that's gonna allow you to save the entire insurance industry and the US economy?

You know, I'm sorry that replacement cost is a casualty along the way. I readily admit there are many things in life that I don't have the faintest idea of what I'm talking about, so I apologize for that, too, but I'm burning the midnight oil to try and execute on some of these ideas. I'm doing my best, and some mistakes will be made along the way; that's good, because at least some decisions are being made along the way. Stay hungry, stay foolish.

My solution to the complicated homeowners policy is this simplified plain English policy which I submit for your amusement.

PLAIN ENGLISH HOMEOWNERS POLICY

For a period of ___year(s) ending promptly at midnight, Standard time on ________________

Property Location:_____________________________________

AMOUNT OF INSURANCE YOU BOUGHT: $___________________ BLANKET ON YOUR HOUSE, ALL THE ACCUMULATED FURNITURE AND STUFF INSIDE YOUR HOUSE, YOUR GARAGE (the one where you park your car, not Al's Body Shop) AND ANY OTHER SMALL BUILDING ON THE LOT, AND WHAT IT COSTS EXTRA TO LIVE WHEN YOUR HOUSE IS BURNED DOWN OR SOMETHING LIKE THAT HAPPENS, FOR SO LONG AS WE SAY IT'S OK.

WE ALSO WILL DEFEND YOU IN COURT IF SOMEBODY MAKES A CLAIM AGAINST YOU, OR PAY THE DAMAGES, AND WE'LL PAY THE MEDICAL BILLS OF SOME PEOPLE WHO GET HURT ACCIDENTALLY AT YOUR PLACE, OR SOME OTHER PLACE.

(We could spell it all out in detail, but you wouldn't understand one word of it anyway. We had to hire ten lawyers just to figure this out after we wrote it!)

CONDITIONS:

1. If anything happens and it looks like it's going to cost you money, call us right away and we'll tell you if we're apt to pay for it.

2. Our agent has already told you this is the new "all risk" policy, but even he doesn't know what he's selling, so if you have any questions, call or write to us, not some insurance salesman.

3. Don't lie to us about what happened or how much something cost or how new it is or how it never leaked before. If you try to snow us, we'll not only cancel this policy so fast it'll make your head swim, we'll pass the word around and you won't ever be able to get an insurance policy again short of the Hong Kong Mutual. There are so many regulations, and an Insurance Commissioner who thinks he's king, that we can't lie to you. So don't you give us any song and dance or we'll land on you hard.

4. Replacement Cost: forget it. You don't need it. We'll pay what we say is fair with or without any "Replacement Cost coverage," and we don't care what your neighbor's policy has on it.

5. The "AMOUNT OF INSURANCE YOU BOUGHT" listed above is the absolute cost we will pay no matter what your house and other stuff is worth or however many people sue you for any one accident, so you'd better be sure you have bought enough to cover the worst disaster that you can imagine. Don't depend on our agent for this! If he had any imagination, he'd find an honest occupation.

6. Don't bother us with a lot of questions about what is and isn't covered by this insurance. We'll tell you when you need to know. If we told you now you'd forget it in an hour, if you ever understood it in the first place.

7. YOUR DUTIES: (1) Pay the premium, and (2) call us right away when you think something's happened (don't try to analyze it, just call in.) That's all you gotta do. Don't try to get cute; see (3) above, in case you have forgotten already (which doesn't surprise us.)

8. If we think of any additional conditions, we'll let you know. By the way, if what happens involves a vehicle, airplane or boat or has to do with your job, forget it; don't call us; we don’t cover it.

I like item #4 and #6 let's use it

 

[adjusterjack]

how does that fit into a cohesive, larger vision that's gonna allow you to save the entire insurance industry and the US economy?

I spent 35 years in the insurance industry (life, health, P&C, underwriting, agent, investigator, adjuster) and I have no clue as to how to fix either system.

I salute you, Al3x Lee, for giving it some thought.

 

[Al3x Lee]

I was watching some of @shawnmwalker 's YouTube channel this morning. He made me realize that we must convince carriers to move away from predictive modeling and return to old-fashioned risk profiling. I don't fault Shawn, as he had no way of knowing the slippery slope the industry was on in 2020. Risk profiling looked like a great idea at the time. Hell, just look at the investments in Insurtech companies.

I truly have a profound admiration for the traditional underwriting process, which, in its quaint and unassuming way, still manages to outshine predictive modeling and all of the world's technology in the most delightfully dry manner. As Shawn points out in his video, when Elvis Presley was gyrating his hips on live TV, the underwriters were sagely nodding in disapproval.

Yes... let's talk about the Elvis situation... Those old-school underwriters, with their impeccably calibrated risk antennae, saw through that hip-shaking spectacle like the pros they were. You see, predictive modeling may have missed the significance of those gyrations but not those trusty underwriters. They sensed the seismic shift in the insurance landscape. Predictive modeling, it seems, can't quite predict the impact of a swivel of the hips.

But it doesn't stop at Elvis. Underwriters have a remarkable knack for spotting risks in the most mundane of situations. Predictive modeling might scoff at such things as ordering pineapple on pizza. But our underwriters? They know better. They understand the domino effect (no pun intended) that a seemingly innocuous topping can have on your loss ratio. Pineapple on pizza today, insurance calamity tomorrow.

And then there's that invaluable gut feeling. Predictive models might crunch numbers, but old-school underwriters? They trust their gut implicitly. When they met a client, they sensed the risk level in a way that defied explanation, relying on an organ that, as far as we know, cannot be programmed into a computer for risk analysis.

 

[adjusterjack]

And then there's that invaluable gut feeling. Predictive models might crunch numbers, but old-school underwriters? They trust their gut implicitly. When they met a client, they sensed the risk level in a way that defied explanation, relying on an organ that, as far as we know, cannot be programmed into a computer for risk analysis.

That's right. I was trained in the old school methods when I went through the Hartford's underwriting training program. The underwriters were old-timers who had been doing it for decades.

 

[Al3x Lee]

That's right. I was trained in the old school methods when I went through the Hartford's underwriting training program. The underwriters were old-timers who had been doing it for decades.

Unfortunately that's becoming a lost art. I seek to bring it back

 

[AZDave]

I like my Regional carriers. They seem to keep much of the 'old shool' practice alive. Nothing like being able pick up the phone and have a conversation about a risk with an Underwriter that can make a decision. You get to know them well over the years and they still believe in annual agency visits.

The bigger the company's get, the more they become less human, more tech. Today, the ones in trouble, so it seems.

Unfortunately that's becoming a lost art. I seek to bring it back

But please do not bring back: 3 carbon memo's, the ronoco calculator, poloroid photo requirements, suit/tie dress code to name a few....