Buying Insurance

State insurance commissioners have sharply different opinions on the auto and life insurance shopper’s guides distributed by Pennsylvania Insurance Commissioner Herbert S. Denenberg. In the four months since I requested these opinions from fifty‑one state insurance commissioners (including those of the District of Columbia and Puerto Rico), thirty-two have replied. Thirteen were negative on the Pennsylvanian’s shopper’s guides, nine approved of the idea, six were reviewing the guides, and four had not seen or heard of them.

The commissioners critical of the shopper’s guides included Wisconsin’s S.C. Durose who described life insurance shopper’s guides generally as “deceptive and misleading to the consumer” and as “attention-getting short term matters that tend to resemble Madison Avenue gimmicry.” Ohio’s Assistant Commissioner, Jimmie E. Jones, Jr., replied that shopper’s guides which specifically rank companies should not be issued. He said that while such guides advance consumer awareness, they distort or ignore important factors in buying insurance other than price comparisons.

Critical insurance commissioners, such as those of West Virginia, the District of Columbia, Idaho, Kansas, Missouri, and Minnesota, described the guides variously as incomplete, confusing to the consumer, neglectful of service and selectivity differences, and capable of being misused by high ranking companies and their agents to encourage policy holders to cancel their existing policies. Commissioner Edward Lombard of the District of Columbia was the sharpest of Denenberg’s critics, declaring “We never compare ourselves to any other particular state but arrive at our decisions as technicians since this department is not used for personal politically-inspired purposes.” He added thatif auto and other casualty rates are excessive, inadequate, or unfairly discriminatory, a commissioner should order an immediate readjustment. As for life insurance, he said policies have different features, even when issued on the same plan.

The Texas Commissioner’s office noted that the value of any comparison is reduced when the one policy on which a company is ranked may represent only one percent of the company’s total sales in that state. The Kansas Commissioner, Fletcher Bell, cautioned that the guides can become quickly outdated and the necessity for completeness would make the guides too voluminous and difficult to comprehend by the “average insurance consumer.” He noted that Denenberg points out such problems in his guides, however.

Commissioner Berton Heaton of Minnesota, in a detailed analysis, noted that he has reason to believe “loss leaders” may not be detected to keep a company off a high ranking position. He cited Bankers Life of Des Moines, Iowa, number one on the Pennsylvania list, as having, in the past ten years, “sold only a handful of the kind of policy used for comparison in the guides.”

Most enthusiastic for the shopper’s guides are New York, New Jersey and Massachusetts whose commissioners intend soon to undertake similar projects. New York Commissioner Benjamin R. Schenck referred to criticism of specific features of the Pennsylvania guides but added that “Commissioner Denenberg’s response — ‘if you can write a better guide, please do’ — is right on the point.”

Denenberg, of course, is fully aware of the criticism, having been a leading insurance scholar for years at the University of Pennsylvania’s Wharton School of Business. He intends to update and further refine his guides. Overall, the various state insurance department responses indicate that Denenberg’s guides and provocative disclosures are pushing other commissioners to make long-neglected decisions about how much more usable information they should provide the consumer. It is unfortunate that a significant number of insurance departments either have not heard of or received the Pennsylvania guides weeks after their release or asserted that they had too small a staff and budget to consider similar consumer information projects.

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