Why Too Many Americans Don't Understand Their Insurance

Why do so many Americans fail to understand insurance? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Assaf Wand, CEO and Co-Founder at Hippo Insurance, on Quora:

There is no denying that insurance—home, car, or personal—has never provided the most inspiring or exciting source of conversation. These days, just coaxing new recruits into the insurance industry involves videos of zombies and free bacon. Consumers feel no more passionate: in a survey we conducted this year, over half of respondents noted they would rather go to a dentist than deal with their home insurance company. Nearly five percent said they would give up their firstborn child to avoid dealing with their home insurer! (We can only hope they are joking...)

In light of these facts, it may be easy to blame the fact that so many Americans know so little—just 4 percent of us can identify basic health insurance terms—on our own disinterest. But to do so would be misguided and dangerous. For one, this complacency comes with real costs. Insurance is only boring until you need it. Should your home be catastrophically damaged in a storm or your car totaled in a wreck, insurance would make all the difference in ensuring the financial well-being of you and your loved ones.

We believe that, as insurers, we only have ourselves to blame for this predicament; our collective industry simply does not serve its customers well. Speaking for our area of expertise in home insurance, this fact is painfully obvious. Home insurance policies are typically sold in a cumbersome process that involves tedious paperwork and arcane questions about your ceiling height and kitchen countertop material. Coverage remains woefully outdated and opaque, with protection for pewter bowls, furs, and crypts but not nearly enough for modern appliances and home electronics. And any online functionality or assistance for your policy, much less support for modern Smart Home devices, is virtually nonexistent. The result? Nearly two-thirds of American households are under-insured, and nearly three-quarters of consumers miscalculate just how much coverage they need, putting themselves at risk in the process.

This issue is not strictly limited to the home insurance industry, however. More broadly, there is a gulf separating consumers' understanding of insurance products and the industry's methods of reaching them. According to a 2014 report, consumers have interacted less with insurers than with almost any other industry—banks, mobile companies, online retailers, energy utilities—that exists today, which contributes to today's unacceptably low consumer satisfaction ratings for our industry. As consumer expectations change with continually evolving technology, this gulf is only widening. A survey this month by Clearsurance finds that nearly 50 percent of consumers would be comfortable buying any type of insurance online, and 65 percent believe online purchases are the way of the future for the industry. Despite this, insurance remains a woefully traditional industry in terms of its digital outreach.

We can do better.

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