IRC Study Finds Many Policyholders Do Not Understand How Choosing Higher Insurance Deductibles Can Lower Premium Costs

January 23, 2006 Malvern, PA.- More than four-in-ten Americans who have a homeowners policy do not understand the relationship between a deductible and a premium, according to a recent study by the Insurance Research Council (IRC). Even among those who know that their homeowners, renters, or condominium owners policy has a deductible, 38 percent do not understand that when the deductible increases, the amount of the premium decreases.

The accompanying figure diagrams percentages of other subgroups who do not understand the relationship between the deductible and the premium on a homeowners policy. Thirty-seven percent of those who filed a claim within the past five years, 37 percent of homeowners, and 48 percent of renters-all of whom knew that their policy has a deductible-answered incorrectly when asked how an increase in a deductible affects a premium. They thought that the premium either increases or stays the same, or, most frequently, they didn�t know.

�These findings suggest that a large percentage of the American public does not understand one of the fundamental principles of insurance,� explained Elizabeth A. Sprinkel, senior vice president of the IRC. �Homeowners struggling with insurance affordability may be uninformed about one of the simplest ways to reduce their premium.�

The results of the IRC�s report, Public Attitude Monitor 2005, Issue 2, are based on a survey conducted by TNS NFO, a market research company. The survey consisted of a self-administered checklist mailed on January 1, 2005, to households selected as representative of the United States. The report is based on more than 55,000 respondents age 18 or older who answered six questions about homeowners insurance. The robust sample size supports a high degree of confidence in subgroup analyses.

The report also indicates that most Americans find it easy to obtain homeowners insurance that meets their needs and is affordable. Among homeowners, 87 percent find it very or somewhat easy to obtain insurance that meets their needs, and 74 percent find it very or somewhat easy to find insurance that is affordable. Low-income homeowners are only slightly less likely than affluent homeowners to find it easy to obtain appropriate and affordable insurance. Filing a claim within the past five years has a small to negligible effect on the percentage of homeowners who find it easy to obtain insurance. The report also covers the percentage of homeowners who carry a policy and the percentage of policyholders who have filed a claim within the past five years.

For more detailed information on the study�s methodology and findings, contact Elizabeth Sprinkel by phone at (610) 644-2212, ext. 7568; by fax at (610) 640-5388; or by e-mail at [email protected]. Or visit IRC�s Web site at Copies of the study are available at $25 each in the U.S. ($40 elsewhere) postpaid from the Insurance Research Council, 718 Providence Rd., Malvern, Pa. 19355-0725. Phone: (610) 644-2212, ext. 7569. Fax: (610) 640-5388.

About IRC

The Insurance Research Council is a division of the American Institute for CPCU and the Insurance Institute of America. The Institutes are independent, not-for-profit organizations dedicated to providing educational programs, professional certification, and research for the property-casualty ins urance business. The IRC provides timely and reliable research to all parties involved in public policy issues affecting insurance companies and their customers. The IRC does not lobby or advocate legislative positions. It is supported by leading property-casualty organizations.