Consumers need information about three things when buying or renewing homeowners insurance policies: Coverage, Quality, and Price. If consumers have full, understandable information about insurance policies and insurance companies they are better able to make wise buying decisions, and that creates competition among companies that leads to better products and fairer prices.
Insurance is the only product for which consumers don’t know what they are buying before they buy it. Insurance companies almost never provide copies of policy language or complete summaries of policy terms to prospective policyholders. And what homeowners are buying can vary widely from one insurance company to another, with some major insurance companies providing coverage that offers much less protection than coverage provided in standard homeowners insurance policies.
Quality is an important attribute of any product, including insurance. The two measures of quality for insurance are insurance companies’ financial stability and their record of paying claims promptly and fairly. States do a good job of monitoring companies’ financial stability, and easy-to-understand financial ratings are widely available. Claim practices are less closely regulated and the information on which consumers can compare companies is not publicly available.
The Essential Protections do not include a standard for providing information about price. Consumers already tend to place more emphasis on price than on coverage and quality when buying insurance, and more information about price is available to them. But it is still helpful for states to provide tools by which consumers can easily compare prices among insurance companies, as about half the states do.
No states received a five-star ranking because:
- No state makes claims payment information available to consumers.
- No state requires insurance companies to provide clear summaries of key policy terms to consumers shopping for insurance.
- Only five states make homeowners insurance policy forms available online.
- About a dozen states provide some tool that consumers can use to compare policy terms.
- Twenty-four states provide premium comparisons online.
The state-by-state rankings on Buying Insurance are based on how well states provide information about coverage, quality, and price through their insurance department websites, the most accessible form of information for consumers, and how well states require insurance companies to provide information to consumers.
The elements of the rankings include whether states provide:
o actual insurance policies posted online
o data about insurance companies’ practices in paying claims
o summaries of key policy terms
o a tool consumers can use to compare policy terms
o general information about homeowners insurance policies
o comparisons of premiums.