Insurer report card gets a failing grade
The Florida House passed a bill this week to repeal a law from 2007 that called for a system to grade property insurance companies. Some insurance companies liked the idea of being graded; others did not. Viewpoints weren’t based on grades earned, but the validity of the data.
Let me start with the most obvious problem with the report card prototype, which was published by several newspapers this week. The draft version of the report card grades insurers using data from a five-year period that ended in 2008. How helpful is data that is two-to-seven years old? Not much. Frankly, keeping things current is an ongoing challenge. Consider that the 2010 Annual Report released in February of this year by the Office of Insurance Regulation contains only 2009 data. That’s almost “ancient history” in the fast-paced world of financial services. I’m not finding fault; that is just the way it is. Data for year-end 2010 is due to regulators in mid-summer and by the time all those numbers get crunched, it is yesterday’s news.
Consumer advocates think a report card would be great for consumers. I think the IDEA of a report card has merit, but in reality, what has been produced is far less than useful. Here’s why: If an insurer makes big-time improvements in customer service and claims handling, you wouldn’t see it on the report card for two years. By then, they may now be at the head of the class (or not), and consumers would not know it. Grading on how you performed two or more years ago has little bearing on today.
The report card also grades on the number of consumer complaints a company gets. That seems fair enough on the surface. But there was nothing in the report card to separate a valid complaint from whining. If people do not like the claim settlement, even if it was fair and proper, they will complain. Measuring whining as a demerit equal to a valid complaint tips the balance.
Another grade on the report card penalizes for how long a claim is open. Again, that appears to be a good performance measure, except when you factor in how long it takes to handle a complex sinkhole claim, AND the fact that Florida law allows people to reopen claims five years after a loss occurs or a claim is denied. Yeah, a simple grading system simply does not work. At the Insurance Information Institute, we suggest ways to select an insurance company.