From the hunter to the hunted

Danny Joffe, Senior Legal Advisor at Hollard Broker Markets

With the plethora of pro-consumer legislation being released for comment at the moment, one of the big debates in the short term industry boils down to this: with all the effort insurers have to go through to protect consumers, deal with consumer’s claims as fairly as possible and now even take consumer’s interests into account when determining premiums, is it possible for insurers to still make profits?

With the release of the new draft Policyholder Protection Rules (PPR), the regulator is rightfully concerned that insurers are only focused on profits and not too concerned about what is right for the client. Further, when dealing with claims, they will err on the side of giving consumers a tough time given their access to expert legal services and the latest technology which can suggest when a claimant may be ‘disguising” the truth.

Expensive burden

In protecting the consumer, the regulator may unwittingly have placed a very expensive and labor intensive burden on insurers to comply with, resulting in more claims having to be paid and more money being invested into the system.

Can insurers still profit in times when climate change and catastrophes are also becoming more common?

To answer this question one needs to accept that the way of making profit cannot be linked to making tough decisions with customers on claims. Nor can it be reliant on irresponsible advertising that could entice a customer to purchase a policy that is not appropriate for them or that may not deliver on the promise they expected.

All of this is not being carefully policed by the regulator and insurers will need to submit comprehensive conduct reports in this regard.

The king has changed

Furthermore in terms of risk selection, potential policyholders are being defined as policyholders if the regulator’s proposal is accepted in the new PPR draft amendments.

This means that if an insurer declines someone for insurance, even if they are not yet a client, proper reasons need to be given to the applicant and the applicant has to be treated with fairness and consistency.

It is becoming increasingly apparent, even when it comes to risk selection and renewals, that insurers are being pushed to comply with certain criteria.

This does not mean that insurers cannot be too scientific when coming up with pricing models. Furthermore, the more data they gather from clients, the more accurate they can be in declining the bad risks and giving accurate ratings for the risks that need to be more carefully managed.

It is in the client’s best interests that the schemes be managed profitably and cancelations are inevitable if the insurer begins losing money. Profitability and sustainability of insurers is in everyone’s interest and looking after good clients is critical when managing risks.

The real answer

The real answer will lie in full transparency and consistency; and above all good quality data for the insurer to demonstrate they have been fair, consistent and in all cases acting for good reason.

If full disclosures are made, surveys and actuarial conclusions shared and transparent technology used to detect fraudulent or untrue claims, insurers’ reputations will become enhanced as being fair and trustworthy. As a result, this should attract more and better business. Insurers will always be willing to do what it takes – within reason – to achieve this relevance.

In times of increased unpredictability regarding weather patterns, as well as the country’s crime fighters having their hands full in fighting crime, the need for insurance solutions is increasing. It can only mean sustainability should not be a problem for those insurers willing to invest in treating customers fairly.    

Consumer expectations are high and they are backed up by a regulator increasingly looking out on their behalf. Insurers need to take this into account when investing in infrastructure.