Loyalty and honesty to one’s insurer do pay

Recent innovations in selling insurance as a price-driven commodity offer consumers the ease of comparing the price of various insurance products online. However well-intentioned these practices have resulted in a number of claims that border on irresponsibility.

One such claim is that loyalty to a particular short-term insurer counts for nothing. This implies that the individual has nothing to lose if he or she switches to a different insurer.

This could not be further from the truth.

“The relationship that one has with one’s insurer is definitely taken into consideration when it comes to paying claims. In fact, over the years, insurers build up detailed risk profiles of clients, particularly regarding the veracity of their claims” says Gari Dombo, Managing Director, Alexander Forbes Insurance.

For example, in a recent case where a policyholder’s car keys were stolen, the insurer was able to arrange the immediate replacement of the keys and re-setting of the vehicles’ security system without delay or inconvenience to the owner. Central to this settlement was the trust established with the client over 29 years.

Dombo goes on to cite three instances illustrating the importance of a good and long-standing insurer-insured relationship when it comes to pricing insurance products.

Firstly, client loss ratios are measured over time. So, the longer one is with an insurer and the better one’s claims record, the lower one’s premium is rated. “So, yes, when it comes to premium discounts, proven honesty and loyalty to a single provider does pay” explains Dombo.

Secondly, ex gratia payments (when an insurer decides to pay outeven if, strictly, a policy may not have covered a particular incident) are commercial decisions made on a case-by-case basis. Though very rarely awarded, the big consideration in deciding whether to allow an ex gratia payment is trust, established by consistent honesty over time.

“Very clearly, the longer a client has been honest with the insurer, the more trust is built up. So, again, loyalty and honesty do pay” says Dombo.

Thirdly, supported motor premiums are often lower than unsupported motor premiums. In other words, if you have your vehicle, buildings, contents or any other insurance covered by the same provider, substantial premium discounts can be achieved.

“This is yet another instance where loyalty, this time to a particular insurance supplier, does indeed pay” adds Dombo.

The ease with which insurance buyers can now access the internet to obtain instant cost-based comparisons has had two major effects. Firstly, consumers are able to compare costs like never before and, secondly, a whole range of new providers and intermediaries have been attracted to the personal insurance sector.

While these developments are potentially beneficial since they empower the consumer with the ability to compare and choose, they also threaten the basic nature of the insurance contract which is, ultimately, one based on trust developed over time.

More specifically, pure price comparisons, without a detailed understanding of the variable contents of often very different covers, can also be misleading since the “conditions, exclusions, limits and warrantees of each contract are material considerations in any comparison of value” explains Dombo.

In short, a one-on-one relationship with a provider helps consumers gain a more comprehensive understanding of insurance and its underlying contractual obligations. After all, price should only be one of the many factors taken into consideration when purchasing cover that actually works in the event of accident, loss or injury.

As such “the notion that developing a relationship based on loyalty and trust is not central to the concept of insurance is a false one which buyers of insurance ignore at their peril” concludes Dombo.