Understanding insurance: Survey results reveal troubling trend

Like beauty, statistics — and their significance — may lie in the eye of the beholder — or those of the insurance practitioner when reviewing a recent survey conducted for Guelph-based insurer the Cooperators Group. According to the survey, 66% of Canadians find insurance “difficult to understand” while 63% feel “unsure how premiums are calculated.”

Discussing “difficult to understand” amounts to the proverbial nailing jelly to a wall and would require further digging, but confusion around premium-setting can be examined — and for those accepting the statistics, resolving these misunderstandings seems urgent.

For advisors who view their role as giving advice, taking and executing client instructions and the client’s role as considering facts and recommendations, the statistics seem troubling for those who routinely work diligently to educate their clients.

The statistics become more problematic for those accepting the maxim that insurance is “sold not bought.” Clients rarely call advisors asking for more insurance. Instead, advisors become adept at spotting needs and matching them with products. Confusing the issue, the survey questions did not distinguish between insurance products, so that respondents did not demonstrate greater or lesser degrees of confusion between life and health insurance and the property and casualty side of the industry.

“We know intuitively that there’s a general lack of understanding,” says Dan Thornton, chief operating officer of Regina-based Cooperators Life Insurance Company, a wholly-owned subsidiary of the Guelph-based parent company. “It’s clearly an issue for both the life insurance and general insurance [sectors].”

When asked whether something somewhere had broken down after years of advisors’ attempts to educate clients, Thornton suggested that the answer might lie in the increasing complexity of products, such as critical illness and universal life insurance.

The cost of confusion over premiums cannot be computed exactly but Thornton points to lapse rates on complex products, meaning lost revenues for insurers, lost commissions for advisors and lost coverage for clients. “If people don’t understand what they have, why they have it and aren’t reminded on a regular basis, then that business lapses,” he explained.

As one solution, Cooperators has begun a three-year rollout of an educational program called Insurance 101 with strategies such as increasing contacts and policy reviews between agent-franchisees and clients, twice-yearly client mailings and an educational website containing information such as the mechanics of premium-setting.

Another solution may be simplifying product offerings, a move more easily said than done, since enhancements to already-complex products are sought by policyholders for their needs and by advisors to fine-tune offerings to specific client needs. “That’s the tough piece,” Thornton admits when asked about the obvious difficulty.

The mathematics are best viewed against the trend towards increased disclosure, explains Charlie Pielsticker, president of Toronto-based Pielsticker Insurance. “We try to have an explanation in such a way that a client will have in their file information that they can refer to in one month or one year or 10 years time,” he says. For some advisors, this may mean adding more detail than legally required to the underwriting letter, delivery letter and other correspondence for greater client education.

Life-licensed brokers have less cause for concern than P&C brokers, suggests Toronto-based consultant Ashley Crozier, who questions the numbers as they apply to life insurance, since the questions did not distinguish between products.

Also an actuary, Crozier argues that clients understand that life premiums will not vary widely between insurers, because intense competition discourages wide differences. However they have trouble grasping wide variations in house and car insurance premiums. “Premiums don’t tend to vary as much in life as in P&C.”

Al Emid is a Toronto-based freelance financial writer