Saturday, 20 August 2016

Get insured!

I don’t own shares in any insurance company. Honestly I don’t.

The reason that I encourage people to get insurance is simply because it protects them. The problem is that so few of us understand what insurance actually is.

Every couple of weeks we’re contacted by consumers who tell us the same story. They had a funeral policy but their circumstances changed, perhaps they got another job that offered an alternative plan or they simply couldn’t afford the existing policy, so they cancelled the policy. Their complaint is that the provider then refuses to refund the premiums they paid over the last few years, even if they never actually made a claim.

Our job is then to explain to them that they misunderstood what insurance is. An insurance policy isn’t a savings plan or an investment that offers a return. When you buy an insurance policy you are buying something. Cover against risk.

Insurance is about transferring risk. You pay an insurance company to take a financial risk instead of you doing so. With a funeral plan the insurance company is the one that takes the risk of paying for your funeral should you die. They take that risk every month, so long as you’ve paid. If someone listed on your policy dies then they pay for the funeral. If nobody dies, they don’t pay but you still had the comfort of knowing they would have done and they will do next month if something tragic happens.

I’ve sometimes been tempted to ask to one of these people complaining that they didn’t get their premiums refunded, if they would rather someone had died so they could have claimed?

People frequently complain about insurance being something they can’t afford. It’s too expensive, they tell us. But compared to what? What about compared to not being insured?

Some months ago we got an email from a consumer whose wife had also been in a car accident. Nobody had been hurt but minor damage was done to the other driver’s vehicle. Everyone involved accepted that the collision was her fault. The other driver, who had vehicle insurance, submitted a claim and his car was repaired. However, 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, the 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 what they paid towards the repairs, P10,742. He asked: “Am I legally bound to pay this amount?”

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

Of course what he should have done is have his own vehicle insurance policy. That way his insurers would have paid the price for him.

But he was lucky. He only had to pay for P13,742 worth of repairs. What if his wife had totally destroyed the other guy’s vehicle? A contact in the insurance industry told me about an identical case where someone faced a bill for over P500,000 for destroying the other person’s car. Can you imagine the bill you might be facing if you destroyed someone’s brand new Range Rover or top of the range Mercedes? You could end up owing more than a million.

Or, if you prefer, you could owe almost nothing, if had a third-party vehicle insurance policy. Third-party insurance doesn’t cover your losses, just those of your victims if you cause an accident.

That’s the comparison you should be making. The certainty of spending a few hundred on a third-party vehicle insurance policy, or the risk of having to pay a million and possibly losing everything you own to do so.

I’m the first to admit that it doesn’t always go smoothly. A reader contacted us recently about the cellphone he’d bought from a branch of House And Home that was subsequently stolen. Luckily the phone came with an insurance policy that covered the reader in the event of theft. So far, so good. But why, five months later, having given them all the necessary paperwork, had he not received the insurance payout? When we spoke to them their answer was simple. That’s just how long these things take. Somehow, because the claim had to be processed in South Africa, that excused taking so long to process the simplest of transactions.

It’s simply not good enough. Section 15 (1) (a) of the Consumer Protection Regulations says that services must be delivered “with reasonable care and skill”. Taking five months to process an insurance claims is careless and without skill. Leaving their customer with no cellphone for five months isn’t good enough.

So maybe that’s one of the reasons why so few people have insurance policies. Insurance is seen as expensive and insurance isn’t always as simple as it should be.

Last year we asked people how much they trusted a range of industries, including the insurance business. Only 22% of the people we questioned said they thought the insurance industry was honest and I think that’s a real danger. More people should be buying insurance products to protect themselves against risk and the fact that some insurance companies and stores let their customers down by taking months to process a claim undermines that.

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