The Value and Reality of Transparent Consumer Insurance Contracts

A central goal of insurance law and regulation is to promote clear, unambiguous, and comprehensible insurance policies in personal lines of coverage like auto, renters, and homeowners. Although few consumers read these policies at the time of purchase, comprehensible insurance policies can promote fair and efficient claims payments and enhance the capacity of the small subset of individuals who do read –including agents, regulators, academics, media, consumer watchdogs, and sophisticated consumers – to understand the scope of coverage provided by different companies and policies. Yet many informed observers are skeptical of legal and regulatory strategies designed to produce these benefits, bemoaning the opacity and complexity of personal lines insurance policies. Notwithstanding the importance of comprehensible insurance policies or the widespread skepticism about the attainment of this goal, empirical evidence evaluating the comprehensibility of personal lines insurance policies is virtually nonexistent. This article seeks to highlight this gap in critical evidence and to offer a way forward by describing a strategy to empirically test consumer understanding of insurance policy language and the factors that influence that understanding