Insurance is a scam and insurers are daylight burglars!
3 myths behind this misconception, and 3 good reasons why they are not true...
Myth# 1 "These fine writings are meant to be difficult to read!"
The common public accuses insurers of typing their terms and conditions in small font so that insured members or policy holders cannot read them and then fall in exclusions or restrictions trap.
In reality most of your valuable insurance policies general conditions across the globe are printed in clear font on clear paper, clearly paragraphed, indexed, printed in duplicate and sometimes translated, and in many cases they are even published online for your referral any time.
But it’s true that some policies are printed in a small font, and this is in the case of consumer insurance products that are pre-underwritten and sold on the counter in major distribution areas, like pre-underwritten Personal Accidents, TPL, travel insurance, household P&L, small shop P&L policies….etc
However, the reason why the T&Cs are in small font is not that you shouldn’t be able to read them, but rather that it’s usually a brochure that serves as an application form at the same time. So the poor little piece of paper is supposed to attract your eyes, sell you the benefits, and convince you to take actions but also clarify what is covered and what is excluded, contractual period, eligibility to cover… and many other legal clauses all on both sides of a leaflet, or an A4. Hence, the smaller font is accommodating the smaller printing area.
Myth# 2 "Insurance companies never lose money and they dodge their commitments”
In my humble experience I’ve witnessed multiple insurance companies in multiple markets that have –not only generated losses- but rather went bankrupt and got liquidated by financial regulators to meet their financial commitments. So, insurers take a real risk by issuing these policies to you, and regulators are there to make sure insurers meet their commitments fully and timely.
There are lines of insurance that are usually bleeding money out of most of the insurance companies, yet they continue to distribute them because they are good door openers to other lines that are more profitable, good examples of bleeding lines of business are: health insurance and motor insurance.
Few people know that an insurance company has more chances in investing the accumulated premiums it collects from different clients, than attempting to deny policy holders their rightful claims. Not to mention that regulators are always keen on addressing any complaint related to policy execution.
There is no doubt here that the more people are aware of the conditions of their policies, the less they believe that their insurance company or broker has cheated them.
Myth# 3 "My loss ratio is great and still I got a more expensive renewal, what a scam!"
Some clients collect some information on the claims they’ve hear of, and divide them by the gross written premium they’ve paid throughout the year and consider the resulting ratio as the loss ratio which should indicate whether their policy is profitable or not. Needless to say, such calculations are never accurate, as the client is never aware – usually- of the accurate total incurred claims, the incurred but not reported claims, the outstanding claims, nor is the client capable of knowing how much of the premium was dedicated to accommodate the technical risk of the policy. As there are other contributing costs and fees that go into the calculation. These calculations may vary from one lines to another, and from a policy to another.
Moreover, there are other factors such as inflation, change in risk size and/or its severity or in the exposed population in certain lines of insurance, that all make it impossible for the client to judge the renewal terms.
The best way around this is to have a reliable and trustworthy broker that can help you do the math and analyze your chances.
Having said that, no one can deny that there are people with malignant intentions in every market, be it insurance or any other industry. But this shall in no way be the ruler according to which all insurers are judged.
Your new health insurance in Dubai...
3 good reasons why you shouldn't go for the cheapest option!
With the health insurance mandate reaching its final implementation phase, many decision makers in Dubai business community found themselves in front of a multitude of options, some of them for the first time. And since Health insurance is such a complex product, and it's not easy to tell the detailed differences between different offers, decision makers chose the lowest financial offers. Here are 3 good reasons why you shouldn't do that as a decision maker:
1- (There is no such a thing as a free sandwich!)
Insurance companies load a part of your premium to compensate their overhead and administrative expenses that are aimed at serving your insured members. When you get a quote that is significantly cheap, ask yourself a question, "If this company is not allocating a reserve for serving my members, what kind of service am I to expect?"
2- (You can't afford to buy cheap shopping advice! it will cost you more eventually)
Your choice of brokers is essential to your insurance experience, if you go with the broker who offers you the cheapest option, there is some probability that your brokers have cut their commission to give you this low rate. Here again, you face the question of service quality when you know that brokers thrive on commissions. What kind of service would you expect from someone who has little incentive to serve you?
When you have the full dedication and support of the broker, you can save a lot of money during the year by getting better support on understanding your rights and having the broker's leverage over insurers to fight for your claims.
3- (Can't shovel inflation under the carpet!)
Whether we like it or not, inflation is a solid fact, and it goes into your renewal premium calculation.
In case you know that your group's expenses are high compared to the premium you paid, and still you managed to get a renewal rate that is the same as last year's rate (AKA pass rate), ask yourself where did the inflation go? Anyone's spontaneous reflex would be "why would I care as long as I've got a good deal?", actually you need to care for the sake of your sound financial planning.
This insurer that gave you a pass rate, has interrupted your annual gradual inflation assumptions by absorbing the difference from administration fees (brings us back to point #1), and thus when you work on planning your budget for next year you'll mostly allocate a budget for health insurance that is similar to last year. However, your insurer cannot sustain this sacrifice for more than one year in most of the cases, and you'll probably face a sharp increase on your next renewal with something that compensates the inflation of the last two years, plus all the losses incurred. This is a disaster to your financial planning exercise.
In case your policy witnessed low loss ratio, then point #3 doesn't apply to you, enjoy the good rate with a clear conscience.
Having said that..
Finally, not every economical option is a bad option, if you run due diligence on the shortlisted insurers and verify their quality with some of their current clients, you would reduce the chances of such pitfalls and save money at the same time. Also, your choice of broker plays a major role in this process.