Trust In Insurance: Blog: Trick or treat?

Insurance is synonymous with the feeling of having been tricked – in price or in policy detail. Insurance professionals will feel this is unfair, and in many cases – where insurance has been a ‘life-saver’ both literally and figuratively – maybe they’re right.

At The Mail on Sunday we see evidence of bad and good. We see cases where the insurer has not listened to its customers – such as a customer of Lloyds Bank who claimed on a payment protection insurance policy after they lost their job, but was unfairly rejected. The bank had not considered all the evidence they provided before making its decision to withhold payment and didn’t take the time to understand their story.

But we see the good effects of insurance too – people who were given excellent levels of service after their home was flooded or whose critical illness insurance paid out when they were diagnosed with a serious condition and really needed the money.

The problem is that feedback overwhelmingly centres on the bad. And when we present the good, readers sometimes – wrongly – believe it to be a paid-for advertisement. Or are quick to speak of their own negative experience.

In simple terms, the issue of trust centres around cost and claims. With cost, it could be the initial premium – a dramatic doubling of a travel insurance policy for someone with mild asthma, for example – the rising cost over time for those who automatically renew, or a leap in premiums from one year to the next that leaves customers baffled as to why.

Meanwhile, doubt is rife about the likelihood of a claim paying out – and if it is, therefore, worth buying – and whether or not little known exclusions will prevent one from being successful.

Insurers need to work harder at explaining both, in a language familiar to those who don’t think about insurance day-to-day. And they need to work harder than other companies that demand our money because they are selling a product with no immediate or tangible benefit – and one that may never be of any benefit at all. It’s the only household bill shaped this way.

We might resent paying high prices for household energy, but we can measure what gas and electricity we are using. Our phones and broadband connections allow us to communicate, our TV package provides entertainment and, even with council tax, we’re at least glad to have our rubbish removed each week and live in hope of potholed streets being resurfaced.

But insurance is ‘just in case’ and, rather than catering for an immediate need, taps into our fear of a future need.

So when customers are let down on cost or claims, their resentment of insurance intensifies. A recurring problem we see is when customers contact their insurer to ask questions but make no claim. The phone call is logged on the Claims and Underwriting Exchange and an existing or new insurer will use that information to price a policy higher. Admiral Group has been known to adopt this practice.

One customer who contacted our newspaper informed the company of a minor scrape caused by another motorist, but stated there was no need for a claim because no significant damage had been done. When she came to renew her annual policy they were quoted a premium that was £120 more expensive.

One of the reasons given for increasing prices in this way is that people involved in minor incidents – even when it wasn’t their fault – are more likely to make a claim in future.

But this doesn’t seem rational or fair, that because of the actions of someone else – or just the bumps, scrapes or minor incidents that occur in ordinary life, and which aren’t worth making a claim – you’re more likely to claim in future and should, therefore, pay more now.

What about the volume of policyholders who experience the same number of minor incidents in life and simply choose not to tell their insurer, and, therefore, don’t pay more? All this practice does is penalise honesty. And how can an insurer ask people for trust when it punishes customers who are most transparent?

There are insurers that have decided not to treat questions or conversations automatically as claims. Those that do take note and ditch the practice too. Or at the very least take a uniform approach to ‘queries versus claims’ so that customers, too, know the difference. Asking how much a policy excess is, for example, should not be classed as a claim, incident, or in fact be noteworthy at all, but it has in the past. Everyone has the right to know that simple fact, directly from the insurer’s call centre, without being charged higher premiums at renewal just for wanting information.

If insurers that stand by the cost of their premiums can show how it adds up, this may go some way to restoring trust. If a premium goes up, an explanation about why that customer poses more of a risk, and what it is that adds cost, might temper disbelief.

And if a travel insurer is one that’s likely to charge disproportionately more for mild health conditions, or deny cover for moderate to serious illnesses, this should be indicated prior to travellers inputting their information and asking for a quote.
Customers need to know the rules of insurance before they buy. Not in tiny writing in an epically lengthy booklet accompanying a quote, but in a simple question and answer form summing up how insurance works and what will affect the sums they pay.

And crucially customers should be able to ask questions without fear an insurer is trying to catch them out.

For more information, visit: www.postonline.co.uk/tag/trust-insurance

Laura Shannon
Personal finance correspondant, Mail on Sunday