Revamp the industry using verifications

A policyholder recently asked the question: "My policy gives me a percentage of my contents sum insured as all risks cover. I was happy with this until I realised, having had to change my annual holiday plans due to poor weather, I was carrying a substantially larger percentage in my vehicle away from the house. Why can’t I have insurance that covers my goods at all times? Luckily, I didn’t lose any property on this trip.”

On advice from their brokers, clients have to specify some possessions for out of the house cover which includes cameras, sports equipment, laptops and other household goods. Such cover comes at a premium, and is commonly charged over and above the premium for household contents.

One must ask then, how often does the specified item actually leave the house? While in the house, it is covered under the contents section. Many people only use their camera once or twice a year on holiday and for the majority of the time it is stored away in a cupboard at home. The client is therefore paying an additional premium for an article that is covered under the contents section for possibly 95% of the time.

Many insurers and underwriting companies offer verifications to their clients where detailed asset inventories are provided by the verification company in order to establish an accurate sum insured for their house contents. This places the broker or insurer in a position to establish exactly what percentage of goods are high risk items and low risk goods.

Let us take two clients with the same sums insured. One person has mainly furniture and very few high risk items such as electronic equipment. The other has a bed and a fridge, and the rest of the sum insured is made up of a very expensive music system and various other high risk items. We all know that contents are not homogenous. So, is it fair practice for the industry to apply the same rating to establish the premium for these two clients?

Those who make use of the professional services of verifying companies could utilise the information supplied on the detailed verification inventory to adapt their rating structure. Charge different rates for different categories of the contents depending on the level of risk these items carry.

Traditionally, insurers charge a rate of say 1% for contents based on the sum insured. With a verification inventory in place, why would it be challenging to charge, say, 0.25% on the low risk items like furniture, 2% to 3% on higher risk goods and perhaps 4% to 5% on very high risk items? If this method is adopted, the necessity to have an all risks section on the policy can be abandoned and an all risk policy can be offered to the client. Simply make the verification part of the policy schedule.

 

Some verification companies offer an add-on service whereby the clients’ inventories are kept up to date. This presents the client with peace of mind knowing exactly what is insured and how much it is costing. The claims process will be considerably easier for brokers, underwriters, insurers and clients. It is quite simply a matter of: if it is not listed on the verification inventory, it is not insured.

This also places the onus on the client to show the verifier all possessions during the verification process.