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Getting consumers to recognise the risks and to appreciate the value of insurance coverage

Despite insurance having been around for centuries, there still seems to be a general feeling among consumers that insurance is a “grudge purchase”.

By its nature, insurance is an intangible benefit, one which can only be tested under adverse circumstances when emotions are running rampant.

Michael Blain, CEO of Centriq, the first BEE insurer in risk finance, provides some insight into the current challenges facing the insurance industry.

Many people first think of purchasing insurance when buying something on credit as lending institutions generally require credit insurance to protect themselves in the event of loss or destruction of the items purchased.

Often people are so excited about their purchase that they accept any policy placed in front of them only to find that it doesn’t meet their needs at a later stage. On the other hand, some people have not budgeted for the expense of insurance and therefore look for the cheapest premium available without considering the risks they face and the quality of the insurance product.

“The challenge of the insurance industry is to get consumers to recognise the risks they face and to appreciate the value provided by properly structured insurance coverage,” says Blain.

Every time a person gets behind the wheel of their car, they assume unknown and unlimited liability for their actions. Houses which are left unoccupied may be burgled or burn down unexpectedly, and without the proper cover, situations like these may leave the homeowner responsible for ruinous debt.

Insurance seeks to provide protection against such incidents arising from the misfortune or negligence of the insured.

Large businesses have come to recognise the extent of risk exposures and employ risk managers and sophisticated models in order to identify and quantify such risks and to insure appropriately.

However, the complexity of some policy wordings, opaque underwriting rules and criteria, and a lack of regular personal interaction mean that consumers cannot assess the value of the premiums paid to their insurance company, until misfortune strikes.

“Various steps are being taken by insurance companies to address the negative perceptions concerning insurance."

"For instance, insurance companies have moved to writing policies in plain language, various consumer education initiatives have been undertaken by the insurance industry, while brokers and financial advisors are required to explain the benefits and conditions of insurance policies to their clients,” notes Blain.

Insurers are working towards the streamlining of claims processes in order to speed up settlement times and to eliminate consumer frustrations and inconvenience.

Unfortunately, South Africa experiences high incidences of insurance fraud and corruption and the steps taken to combat fraud and corruption impact unfavourably on honest policy holders.

“When purchasing short-term insurance protection, consumers should firstly decide whether to use the services of a broker or whether to deal directly with the insurer. If they decide to deal directly, they need to take into account whether or not they have the necessary knowledge and experience to take responsibility for arranging their own coverage."

"The benefits of using a broker may not be evident initially; however, brokers can prove their worth when a claim situation arises,” says Blain.

Whether purchasing directly or through a broker, consumers should consider the reputation and financial strength of the insurer concerned.

“When purchasing long-term insurance, a consumer needs to seek disclosure of all costs and penalties associated with a specific product as well as a clear explanation of the product’s benefits."

"As a general rule, long-term insurance should not be purchased on impulse, but should be part of a professionally prepared financial plan in line with the person’s specific life stage, goals and needs, says Blain”.

Long-term insurance is, as the name suggests, a long-term commitment with costs and financial penalties enforced for early termination.

By consumers asking pertinent questions and getting as much information as possible on insurers and appropriate advice on the different policies available to meet their particular needs, they can avoid acrimony and disappointment at claim stage.