Saturday, 15 August 2015

Insure yourself

Late last year we conducted a public survey on the perceived honesty of twelve different industries. We asked several hundred people on the streets of Gaborone to say whether they felt each industry, including car dealers, banks, attorneys, cellphone network providers and supermarkets, were honest or dishonest.

Given their reputation nobody was surprised that second-hand car dealers were perceived as the least honest, with only 8% of people saying they were honest. They were closely followed by microlenders (18% saying honest) and furniture stores (22% saying honest).

What surprised me most were the scores given to the insurance industry. Only 22% of people said they thought the industry was honest and 60% said they thought the insurance industry was dishonest.

I don’t think that this suggests that the insurance industry IS actually dishonest, I think it means something else. I think it means that the majority of the public simply doesn’t understand what insurance really is. That’s something that we’ve seen at Consumer Watchdog over the last decade. Take this example of a message we received (I’ve removed the name of the funeral parlour).
“There is someone who is part of a union and has a funeral cover which doesn't include a casket and she opened another policy at XXX Funeral Parlour because it has the inclusion of a casket and later on the union policy cover adds casket as part of the funeral cover which meant she had two similar funeral policies. She then writes a letter to XXX to cancel the policy which was successful but was told she will not be able to claim her money or change the policy to another or replace it with another family member. Why can't she be refunded since the policy has never been claimed?”
So is she wrong to think that her friend is entitled to a refund of the premiums because she never made a claim?

Yes, she’s wrong. This isn’t how insurance works. Insurance policies aren’t savings schemes. When you pay insurance premiums, in this case to a funeral parlour, you receive something every day in return: cover against risk. In a sense you’ve paid the company to take the financial risk on your behalf. In return for that small monthly payment they offer you a large payment in the event of a tragedy. If you or one of the people covered by your policy die then they’ll pay out. Even if you’re lucky, nobody dies and you don’t make a claim, you still had the knowledge, the comfort that you were covered if a tragedy had occurred.

We’ve heard this same story many, many times. A lot of people genuinely seem to believe that if they don’t make a claim against an insurance policy then they’re entitled to have their premiums refunded. Then they get angry and that anger is what, I believe, is behind the fact that 60% of people seem to think that the entire insurance industry is dishonest. I suspect that a lot of people have been disappointed when their misunderstandings about insurance have been revealed.

We had another email from a consumer whose wife had a minor car accident. Thankfully nobody was hurt but some damage was done to the other driver’s vehicle. Everyone involved accepted that the collision was her fault. The other driver claimed against his vehicle insurance policy and his car was repaired. However, while the other guy’s insurance covered the repairs there was an “excess” amount of P3,000 that the other driver was required to pay. This is common in insurance policies, there is an amount that the policy doesn’t cover which the insured person has to pay. So the other driver came to the husband, owner of the vehicle, and asked him to pay him back for that sum of P3,000 which he willingly did.

Months later the other driver’s insurance company wrote the husband a letter demanding that he compensate them for the entire cost of the repairs, P10,742. He asked: “Am I legally bound to pay this amount? If so can it be paid in monthly installments?”

The answer is simple. Yes, he IS required to compensate the insurance company. The other driver did nothing wrong, so he deserved to be paid back for his losses and the insurance company didn’t do anything wrong either. They were “innocent parties” and they deserve to get their money back. It’s perfectly normal practice.

Of course what he should have done is had his own vehicle insurance policy. That way THEY would have paid his debts for him. They would have taken the risk for him.

Finally another consumer contacted us asking if it was true what an insurance salesman had told her. That if all her family had funeral plans that covered her grandfather only one of them could ever claim when he passed away. Could this be true?

No, of course it’s not. If someone is covered by multiple policies then multiple claims can be made. The insurance company confirmed this to us, saying that: “This is definitely incorrect. We pay benefits based on whether or not all premiums are up to date and not based on how many people had covered the deceased.”

I’m a big believer in insurance. It protects you against the financial threats offered by all manner of events. It can save you a fortune if a disaster occurs. The problem is that I don’t think we’re being educated enough about it by insurance companies. The stories we hear seem to confirm that. The fact that 60% of people don’t trust the entire insurance industry seems to confirm that as well. They are seen as only slightly more trustworthy than second-hand car dealers and loan sharks.

So insurance industry, what are you going to do about that?

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