British Friendly - Lies, Damned Lies and Claim Statistics19/02/2015
In our industry, performance is often measured by our ability to pay claims. Claims are at the heart of our culture because there’s no point in having insurance if it doesn't pay out. So we focus on what’s important. And rightly so.
In the eyes of a mutual insurer, everyone deserves cover because we’re all in it together as equal paying members. All occupations are priced the same and risk is managed through reviewable premiums, which allows the flexibility and fairness needed to keep paying as many claims as possible.
It is all about consumer confidence and if paying claims really is at the heart of our culture, if you are proud about it then you want to shout about it and the protection industry should be publishing its claims numbers much quicker and much louder to get the best outcomes for all parties.
As an industry though we assume that guaranteed rates are the best option for every customer who buys cover often without considering the wider picture of continuing to pay those claims.
What does a guaranteed premium actually offer the customer? It guarantees the price they will pay over the term of the policy. And if all else was equal that might well be a good thing. But is all else always equal?
What happens to insurers when faced with an increasing book of claims who cannot change their premiums accordingly? Insurers who may have secured that business for little other reason than being the cheapest on the list at the time?
They can opt to absorb their losses, increase new business prices, tighten underwriting, take a tougher stance on claims, or all of the above. Ultimately, these factors will tend to drive down the quality of service both to the customer and the intermediary. Indeed some advisers believe we have already seen this happen already in the market.
Put simply, insurers with guaranteed rates can either pay the claims and cut costs, or decline claims. Whereas an insurer with reviewable premiums has more flexibility to pay claims and maintain service.
Although if you get the sums right at the outset you can pay claims without putting rates up. At British Friendly we’ve never yet put our rates up and have paid over 96% of all IP claims over the last five years.
So what really is most important to the customer? Certainly of premium or certainty of claim?
Well, both, I hear you cry.
The priority for a mutual insurer is to pay the highest amount of claims possible. Not to be the cheapest insurer. From this viewpoint, the flexibility offered by reviewable premiums is a sensible and beneficial approach, especially when combined with strong customer service, underwriting and claims history.
And let us not forget, reviewable premiums can go down as well as up.
So let’s not argue about the small print, let’s not challenge the obvious customer value of publishing claim stats. Instead let’s work together to get our good news singing louder than ever before and get people the cover they really need.