Understanding the insurance industry: a call for transparency

“Poverty exists, not because we cannot feed the poor but because we cannot satisfy the rich” (Anon).

It has long been my observation that big business, as opposed to the corner shop, often indulges in somewhat questionable activities. Some of our biggest supermarket chains were, at one time, charging for packaging. This means that a pack of meat at R99/kg will include the packaging worth a few cents, contributing between two to three rands per item when weighed. Different supermarkets to which I pointed this out responded quite differently. One immediately took all the packaged meat off the shelf. Others responded with aggression.

Some mega businesses operate in our society. One of the biggest is the insurance industry. The notion of insurance as a device to spread the risks of life amongst the many is a fine and noble endeavour. However, in some instances, this purpose has been replaced by the need to make ever larger profits for the shareholders. 

In its proper form, the insurer evaluates the risk that they are taking on. This is to enable the company to assess to what extent they are financially at risk by entering into an insurance contract. This process is called underwriting and should be performed diligently before the risk is accepted.

However, in practice, that is not what happens. The risk is accepted, and money is taken from the client. Small claims are paid with alacrity. There is no better form of advertising; however, large claims are scrutinised in the finest detail to find the slightest excuse for repudiation of the claim. In the past, insurance companies co-existed with brokers who acted on behalf of the insured to find the best deal possible among the more than 100 different insurance companies. The broker would, in the event of a claim, guide the insured and, with their superior knowledge, would see to it that an equitable conclusion was reached.

There has been a change, however, with the growth of direct insurance. These companies take on the risk by shutting out the broker. This leaves the insured not only poorly informed about the small print and interpretation of the policy, but in addition, in the event of a claim, the insured is without help against a huge and financially well-endowed opponent. The insurance industry has made increasing use of ex-police detectives to investigate claims, going so far as to incentivise them to achieve a repudiation. 

In a recent case, one of these so-called investigators sought to apply a virtual Breathalyzer to the client, whatever that might be.  All of these methods constitute underwriting at the point of claim. The questions asked should have been asked before the risk was accepted. This leads to the observation that the information on which the risk was accepted was far lower than the information required to pay a claim. Often, the information sought is difficult to obtain amidst the ruins of your burned-out house.

It is advisable to have a competent broker and to avoid direct insurance.

Please let us know about your insurance experience.

* Klatzow is a private consulting forensic scientist

** Views expressed in this article do not necessarily reflect the views of Independent Newspapers.

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