Consumer advocate Robert Hunter: It’s the ‘Wild West’ for insurance regulation in many states

The first time he cashed his paycheck as the federal insurance administrator under President Ford (and later President Carter), Robert Hunter experienced an epiphany.

“It read ‘the people of the United States of America pay to the order of …’ and that’s when it hit me that my customers were the people,” Hunter recalls.

Since then, Hunter has spent more than three decades advocating for transparency in the insurance industry. He’s now the insurance director at the Consumer Federation of America. In the past, he helped set property insurance rates for the State of Florida and served as Texas insurance commissioner.

Hunter talked with InsuranceQuotes.com about the current state of insurance regulation and about being a smart insurance consumer.

InsuranceQuotes.com: How would you describe the current state of insurance regulation in the United States?

Robert Hunter is director of insurance at the Consumer Federation of America, a nonprofit consumer watchdog group.

Robert Hunter: It’s a mixed bag. Some states like California are doing a pretty good job on the auto insurance front. California drivers have had the least amount of rate increases in the past two decades, and insurance there is also very competitive. California is the fourth most competitive state in terms of how many good carrier options consumers have to choose from. California’s insurance regulatory regime also has done a good job making sure the rates that insurance companies set are fair. California has done the most of all states.

But other states are terrible. Illinois is the worst large state and has the least regulation. South Dakota is another bad one, but they’re a smaller state in terms of population. In many states, it’s the Wild West when it comes to regulation. They do whatever they want without regard for consumers.

InsuranceQuotes.com: What should consumers be concerned about when it comes to buying insurance policies?

Hunter: Don’t get caught up in name brands. Our research shows some of the lowest-priced companies are also the best at paying claims fairly and promptly. So you don’t have to fall for the adage “You get what you pay for.” That’s not true in insurance. There are some very fine very high-priced companies like Chubb, which is a great company, but you can get coverage just as good from someone else for a lot less money.

Make sure you’re the one seeking insurance. You shouldn’t buy a policy from someone seeking you out or let someone convince you that you need insurance. If you’re looking for insurance, you’re going to get better rates than if someone is trying to convince you that you need more insurance.

You should never buy insurance from someone selling you something else. So don’t fall for the bait if at the closing of your house you’re told you need mortgage insurance, or the car dealer offers you loan protection insurance to pay the loan off if you lose your job. Those policies are almost always a bad deal. If someone is selling you a product or service and then wants to sell you insurance to protect it, that it a red flag that they’re offering the insurance because it’s overpriced and they receive a large commission on the sale.

InsuranceQuotes.com: What insurance lessons should Americans take away from Hurricane Katrina?

Hunter: Read your policy. Homeowner’s insurance policies have a separate deductible for hurricanes in high-risk areas for hurricanes and tornadoes. So a person could have a $500 deductible for damage not caused by hurricane winds and will also have a separate deductible equaling 5 percent of their home’s worth. If you have a home valued at $200,000, that’s a $10,000 deductible.

Few realized they had an anti-concurrent causation clause that says if two events happen at roughly the same time regardless of the order of the events, and one is insured and the other is not, the carrier does not have to pay either claim. So if a hurricane ripped the roof off a house, and then the house flooded, unless there was a flood insurance policy in place, the carriers won’t covering any part of the claim. That clause is outrageous and still exists in many policies today.

InsuranceQuotes.com: What are insurance companies doing right?

Hunter: One thing they do right is done by the industry, not the carriers. The National Association of Insurance Commissioners allows consumers to check to review the complaint history about your carrier before renewing or buying a new policy.

InsuranceQuotes.com: What are some areas of improvement for insurance companies?

Hunter: Correct pervasive problems like the denial of claims based on computerized systems that are set up to try to save money instead of provide customer service. Claims are claims. They’re not supposed to be profit. And carriers are supposed to pay what they owe.

Place agents in poor areas. To maximize profits, carriers place agents in rich areas and suburbs, because they don’t think there good drivers reside in poor areas. They have so many agents competing for the good drivers in the rich areas that the poor areas aren’t covered.

Omit classifications that discriminate against the poor like credit score, ZIP code and education. A high credit score or increased education lowers rates, but statistics have yet to actually prove that a lower credit score or level of education actually increased risk.

InsuranceQuotes.com: What do you see happening with rates in the next few years for auto insurance?

Hunter: As long as the economy is down, people will continue to drive less and that should keep rates from jumping up too much.

–Gina Roberts-Grey