How well do customers understand their property insurance?

As Hurricane Sandy rushes toward the East Coast and a cold front is expected to exacerbate the damage, many insurance companies are bracing for a barrage of claims that are expected to start rolling in. As "Frankenstorm" is already projected to cost billions of dollars in damages, one of the most difficult tasks insurance marketing agencies have is ensuring that current and potential customers fully understand what is covered under their property insurance package.

Many homeowners labor under the misapprehension that all damages will be fully covered by their insurance company in the event of a major storm. This can not only deal a disappointing blow to homeowners who misunderstand their policies, but it can also complicate and delay the claims process for insurance providers.

For example, Mike Berry of the Insurance Information Institute told USA Today that a large number of homeowners are unaware that their policy may require them to pay a percentage of the replacement value of the property rather than the deductible in a hurricane scenario. This is primarily the case along coastal areas, he added. Despite these requirements being spelled out in disclosure forms, many property owners fail to read the lengthy clauses.

Preparing customers for natural disasters

There are several steps insurance agencies may take to better educate their customers on their responsibilities during disasters. First and foremost, clearly explaining to them which types of disasters are covered and which are not is crucial. For example, millions of consumers who live in flood plains are still unaware that they need a separate flood policy during storms. As a result, when hurricanes hit, many are left responsible for thousands of dollars in damages due to this lack of awareness. When consumers purchase property insurance, companies may benefit from explaining additional coverage recommendations and cross-selling riders or supplemental coverage to protect their assets.

In addition, many consumers also fail to read insurance packages because they can be lengthy and confusing. Companies may benefit by reviewing their current disclosures and providing more simplified versions that offer more clarity to clients. This may not only result in fewer ineligible claims, but also encourage customers to purchase additional products and services from their current provider.