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Appendix B

Personal Lines Insurance Products as Commodities

Insurance industry representatives seem to make an underlying assumption that personal auto and homeowners insurance products have evolved into commodities that are just like other products consumers buy. In this section, we examine that assumption with a comparison between insurance products and other products available to consumers.

There are important distinctions that make insurance different from other products. One should note that if the suggestions by the consumer representatives are adopted to standardize the policy language of auto and homeowners contracts, insurance would be more like other commodities that consumers purchase.

In the following chart, we compare common products that consumers buy.

COMPARISON OF COMMON PRODUCTS

INSURANCE

MORTGAGES

HARDWARE

AUTOMOBILES

Wholesale Cost

Unknown at time

of sale.

Expected cost varies widely, based on buyer characteristics

Variable over the period of the loan

Known to manufacturer

Known to manufacturer

Retail Price

Specific price quotes available;

difficult for the public to comparison shop

Loan rates published and specific quotes available

Publicly advertised

Publicly advertised

Price Regulation

Regulation varies by state and addresses lack of information and complexity for consumers

Current interest rates published and not regulated for price

Market regulates prices

Market regulates prices, however manufacturers required to include many safety features

Limitations

Some people might only be eligible for limited forms of coverage

Some people might only be eligible for higher interest rate loans

No Limitations

No Limitations

Access

Available to all who meet underwriting standards

Available to all who meet underwriting standards

Available to all who can afford

cash or credit

Available to all who can afford

cash or credit

Transparency

Underwriting standards generally unavailable to the public

Underwriting standards available to the public on request

Prices clearly marked on items

Prices marked, but often willing to negotiate

Suitability

Consumer generally can only determine suitability after a claim occurs

Consumer has limited time period to reconsider decision

Can return to retailer if unsuitable;

some warranties apply

Warranty provided for a specified time period

Finality of the Transaction

An agent can bind coverage and an underwriter might decide that the person is ineligible and cancel the policy on a prospective basis

The underwriting decision is made before a mortgage is granted

The hardware item belongs to the consumer once it is purchased, unless it is defective and returned at the consumer’s option

The automobile belongs to the consumer once it is purchased, unless a lemon law applies and returned at the consumer’s option

© 2009 National Association of Insurance Commissioners 12

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