Another survey finds consumer misperceptions about auto, home insurance

It’s not so surprising when surveys show that the public doesn’t understand what their auto or home insurance policies cover — frankly, many people only have them at all because the law or a mortgage or car lender requires it.  If the law didn’t require minimum limits on auto insurance, what percentage of people do you think would buy it anyway? I don’t know if anyone has ever tested for that answer, but my guess is a third to a half of the public would not buy any liability insurance at all. 

Here’s a survey done on behalf of MetLife that contains a perplexing fact.  About 45 percent of people who rent cars purchase one form or another of insurance over the counter, even though most of them are covered by their own primary auto policies.  What is the thinking behind these purchases?  Let me ask the question this way.  If someone knew their auto policy had lapsed, but needed to drive to work that day and wouldn’t be able to renew the policy until tomorrow, what percentage of folks would go ahead and drive the car uninsured for just one day?  A lot.  After all, we drive every day and the chances of being in an accident on any given day are small.  So why, even leaving out the fact that most people are covered for collision and liability by their own primary insurance, does the analysis change when it comes to renting a car? You tell me, I don’t know the answer.

This post on Slate concerns a similar phenomenon — people overinsuring against small risks.  This is something that has been measured in a variety of contexts: for example, if you ask people how much they would pay in the increased price of a product to reduce the chance of being severely harmed by that product from one in a million to one in 10 million, it is surprising that most people would pay a substantial premium for this, even though their chance of being hurt is already so small as to be disregarded, and even though they nonchalantly face much greater risks every day.  Some see this a evidence that models that assume rational economic behavior in all instances are incomplete at best and at worst examples of foolish intellectual pride and blind faith in the cosmos of rationality.  Or perhaps it is not the assumption of rationality that is flawed, but the implementation of it: people may misunderstand basic facts that lead their calculations of rationality to false conclusions.  

7 Comments

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7 Responses to Another survey finds consumer misperceptions about auto, home insurance

  1. Scott Jonsson

    Do the same mis-guided faith percentages also apply when measuring what percentage of blog readers really believe what they read in a blog ?

  2. You see, you are thinking like the lawyer you are and assume that everyone wants to hide the ball. Blogging as a lawyer is not the same as practicing as a lawyer, and in fact, I don’t advocate hiding the ball in litigation either but rather I advocate communicating formally and informally with the other side as much as possible. In blogging, I am an advocate of open sourcing: whenever possible I have links to primary sources so people can see for themselves. They are able to draw their own conclusions and double-check mine. Open sourcing, Scott — free yourself, free your mind, you have nothing to lose but your chains.

  3. Scott Jonsson

    “Free yourself, free your mind, you have nothing to lose but your chains”….seems like I heard that one before from a fellow named Karl Marx. Lot of good it did him.

  4. Marx also had another saying: “History repeats itself, first as tragedy then as farce.” Kind of like your comments.

  5. Scott Jonsson

    Your misguided rejoinder is typical of you who hide behind the pen[in your case the computer]. Two further historical observational variations are in order:
    Those who live by the computer die by the computer;
    never fight a man [blogger?] who uses ink by the barrel.
    I am fearless. Time to bring it on, barrel boy.

  6. Scott, for full disclosure to other readers, I should point out to those who haven’t made the connection that you are one of my law partners as well as an avid reader of this blog, and that is all intended in fun.

  7. Scott Jonsson

    All true. Dave is one of my beloved partners. I was so impressed with his insurance knowledge that I suggested he share his wisdom with others. Thus, his blog was born. The truth shall set you free.