Canceling homeowners' coverages
If you watch any television, you have probably seen some of Liberty Mutual Insurance Company's high-priced advertising campaign focused on people "doing the right thing" for other people. The ads trace good deeds from one person to another--in a shadow of that movie theme from a few years back--and then attempt to claim this spirit of social responsibility for Liberty Mutual. Well, just as with Allstate's long-standing "good hands" campaign, if an insurer spends a lot of money to applaud its own fiduciary nature, consumers should be suspicious. As Shakespeare would have described it: "Methinks [it] dost protest too much."
If you look at prior blogs in our system, you can read all about Allstate's ruthless "good hands or boxing gloves" campaign, by which it has successfully achieved dramatically higher profits by sacrificing its fiduciary duty to consumers. Because it spends enormous sums of money on fancy advertising, it has been able to remain in business, despite a business plan that sacrifices its own insureds to higher profits. Taking a page from Allstate's profit-book, Liberty Mutual--an insurer that we believe repeatedly puts its own interests before the interests of consumers and policy holders--spends mightily on advertising, while making avaricious business choices that do not serve its customers.
Recently Liberty Mutual sent notices of cancellation to hundreds of homeowners in Northeast states in order to eliminate hurricane coverage risks. Elsewhere in our blog, you can read about insurance industry studies that documented the enormous profits made by the American insurance industry post-Katrina. Liberty Mutual's response was unique, however, in that it tied cancellation (or "nonrenewal") to the fact that homeowners were cancelled because they did not have auto insurance with the company: that practice of bundling services in a non-competitive manner is illegal and Liberty Mutual was rebuked by state insurance authorities.
In the long run, a valid public policy is served by making insurance costs reflect the actual risks of loss. If people make a conscious decision to buy or build in coastal regions where flood damage is a genuine risk, they should know "up front" the actual financial risks they are assuming and share those risks with other risk-taking consumers. On the other hand, consumers should be wary of insurers such as Liberty Mutual, Allstate and State Farm, who advertise heavily while making business choices that are inconsistent with public policy.