Cedric E. Stephens, Contributor
QUESTION: I had an accident with a motorbike in June. The two parties were said to contribute to it on a 60/40 basis. I repaired my vehicle. My policy is due for renewal this month. My insurers, Globe, do not want my policy. They are cancelling it in the middle of a claim without transferring any of my 60 per cent no claims discount. This is after eight years without a claim. I will suffer because they may have to pay out $24,000. It looks immoral to me. No one wants to insure my 2000 Honda Accord for less than $100,000. Can you help me?
- philo022002@yahoo.com
Answer: Morality is a set of values founded on culture, religion and philosophy. It guides persons about what is right or wrong. Insurance companies are legal bodies. They are driven by self-interest, market share, profit, contract and law (sometimes, based on activities in the US). The actions of your insurers appear to be influenced by what is right for them. Whether this causes you to suffer is of no importance! Being moral is not the issue.
John Tiner, chief executive of the Financial Services Authority (the UK insurance regulator), disagrees. Consumers are responsible for their financial decisions. He feels, however, that "they are entitled to rely on their service provider or adviser to treat them in a fair manner". This view is probably influenced by the OECD's Insurance Committee's best practices. Speed, fairness and the provision of information should be some of the benchmarks in claims handling, according to the committee.
Were you treated fairly by Globe? Let's take a brief look at some selected results from their financial statements for the period 2002 to 2004 (See table below):
UNDERWRITING RETURN
These numbers explain why your insurers seem so cold and uncaring. They have lost lots of money on motor insurance since 2003. Underwriting return is the amount that remains after costs, including claims, have been paid. Don't allow the investment and other income to mislead you. Underwriting result is the yardstick that insurers use to measure performance. Investment and other income are 'brawta'. Bear in mind also that as interest rates decline, these earnings which started to head in the wrong direction last year, will continue to fall.
The fact that you made a positive contribution to the results of your insurers for seven straight years is history! What matters in 2005 is to staunch the flow of red ink.
Here are a few ideas that you should explore to save money:
Check your policy very carefully. Examine whether your insurers were correct to remove your no claims discount. Some policies have a provision that if a claim does not exceed a certain amount it will not be taken away.
Shop around to see if you can obtain better terms. The $100,000 premium you have been quoted - it appears to be based on a $1 million estimate of value for your car - seems to be very high. The premium is inconsistent with your claims history and one expected claim payout of $24,000 in eight years.
Seek the help of an insurance broker.
Consider carrying a higher than standard excess under your policy in exchange for a premium discount.
Examine the merits of limiting the number of persons who can drive your car in return for a discount.
If you decide to switch companies make sure that you select one that does not take away all of your no claims discount if you file a small claim.
In the event that you have another accident, do a cost-benefit analysis. This can help you decide whether it will be in your interest in the long run to pick up the entire tab or to get your insurers involved.
The longer term solution to your problem is in the hands of Omar Davies. He has the ultimate responsibility for our insurance regulators. Assuming that he shares the vision of the UK body and can get the people at the FSC to buy into it, perhaps the first world's claims best practices can be implemented to benefit you and me before 2015!
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. If you need free information or counsel to help you solve a problem write to The Financial Editor or contact Mr. Stephens directly at aegis@cwjamaica.com
