Opinion: We’re all getting ripped off – and we’re letting it happen

Opinion: We’re all getting ripped off – and we’re letting it happen | Insurance Business

Opinion: We’re all getting ripped off – and we’re letting it happen

The inaugural Australasian Catastrophe and Risk Management Modelling conference was held in Sydney last month, with over 200 reinsurers, actuaries, risk modellers, regulators, brokers and insurers coming together to discuss the impact of natural disasters and to seek out improvements in technology, data, modelling and all things catastrophe-related.  

The opportunity to try a little experiment on such a captive audience of industry experts was just too tempting. I figured the audience members were all familiar with assessing risk, weighing up probabilities and hedging their bets on a likely outcome, right?

I bet the audience there was an almost certain probability I could get unanimous agreement on the answer to a specific question. Everyone was asked to imagine this scenario:

·    There’s been damage to your own home – the front verandah has totally collapsed and now requires repair.
·    You locate and contact a local tradesperson to inspect the damage and prepare a written repair quote, which they gladly do.
·    The repair quote is now in your hand.  
·    You say to the tradesperson “Oh, by the way, this will be an insurance claim. Do you want to revise your quote?”

I asked all those who believed the price will go up to raise their hands. The room became a sea of raised hands.  I then asked who thought the price would go down or stay the same. Not one single hand went up.

The experiment was a success. I reckon it’s a safe bet that you, too, believe the price would go up. Why? Because it’s an ‘insurance job’.

Sadly, there is a level of acceptance, or even complacency, of the status quo. Home and building repair costs are frequently inflated just because an insurer is footing the bill. 

Every inflated claim erodes sums insured. Ray Forman from Ausure Insurance Brokers in Bundaberg showed me a couple of examples this week where under-insurance has become a real issue as a direct result of unnecessarily excessive property repair costs.

Reinsurers are impacted, as primary layers of cover are eroded more quickly and costs are passed into their layers.  Actuaries factor claims costs into pricing decisions, and it doesn’t take a genius to realise inflated claims costs result in higher premiums.

In my experience, complacency – combined with a lack of transparency – creates a nasty cocktail. So what’s the solution? The significant changes in the motor repair section of our industry in recent years could offer some answers.  These changes focused on:
·    speed, quality and method of repairs
·    new technology  which automated many administrative processes and dramatically increased transparency
·    quality control with particular focus on cost containment

I believe we need to apply the same focus to property damage claims.

Some insurers are beginning to embrace these challenges.  Those who don’t might become the insurance version of Decca Records, who arguably made one of the greatest mistakes in the history of the music industry when they didn’t sign the Beatles. After auditioning for the label, Decca commented: "Guitar groups are on the way out…. the Beatles have no future in show business”.

Yeah, right.

There’s some significant catch-up to do in the property damage claims arena, which lags a decade behind the improvements made in other lines of business, especially motor. Will our industry soundtrack remain ‘Let It Be’ or will we start playing ‘Revolution’?  

Darren Trott is executive general manager of Claim Central and Insurance Business’s new regular columnist.

  • Gary Everdell 2013-09-19 12:16:37 AM
    I tend to agree with the sentiments and certainly as a Broker have had some of my clients take the view that its "fair game" to get a "bit back" from an Insurer. My view is that the clienst who take this view have no real concept of teh fact that they are actually robbing themselves. Again its another case of the Industry needing to keep up the media issues of how these approachs by a small number effects us all.
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  • Dean McCauley 2013-09-19 1:39:47 AM
    I agree with Darren's sentiments too as well as the example illustrated by Gary. What I don't understand is, is why do the public hear very little from the ICA? Outside the industry, the only time I hear about the ICA in media circles is when someone is being interviewed over a particular natural disaster that has just occurred. The ICA website states that they are the representative body of the general insurance industry in Australia. If this is the case why are they not running awareness campaigns with TV advertisements trying to educate the public on issues such as this and other major issues facing the industry such as under insurance. The amount of clients that I have spoken to over the years who don't have the foggiest about the average clause is astounding despite the clause existing in every general insurance contract that covers property. They just want to insure for the amount they still owe on their property and it is only through me explaining it to them they get the picture. I will continue to do this but it would sure be a lot easier if there was some form of awareness campaign going on by the powers to be.
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