Buying insurance on Price: Who would be that stupid to recommend that? Perhaps some who should know better!

Yesterday afternoon, Prof Allan Fels was complaining about the difference in price between home and contents insurance policies and advocating people shop around each year. While he is quoted as explaining there are differences between policies, the fact of the matter is that you typically get what you pay for, but it is not easy for the consumer to understand the complexities of the policies, nor the claims service until it is perhaps too late.

Insurance is one of those products that if you purchase the wrong one, it can have detrimental life changing effects. For many people, their home is their biggest single asset. They may have a mortgage over it. A single event can destroy the home and then what. Yes you saved a few hundred dollars but one policy covers you and the other does not and that apparent saving of say $500, just cost you the entire value of your home and contents.

Even if you get the claim paid by the same company, what is it worth to have one company pay it quickly with minimum fuss, allowing you your choice of repairer, showing great empathy and the other one drags it out and moves you from being a customer to a cost centre. Most would gladly pay 10 times the saving to have the first company look after their claim, but that is a simple decision after the claim. Before hand, too many focus on price as it will never happen to me.

I thought I would just have a quick look at any differences between the two most often quoted policies in the survey. Coles and GIO using LMI  There are two versions here to use. The top one is a detailed comparison in text and the second is using icons. They both show differences in the products which is not surprising.

Policy_Comparison full GIO v Coles

Policy_Comparison icons GIO v Coles

I also attach a comparison of the claims service from LMI Here I have included Allianz as well.

Claims Comparison, Allianz, GIO, Coles

Neither of these sites compare prices as to me that is a long way third after the quality of the coverage and the claims service provided.

I also went on to a non LMI product site which showed what customers thought of the Coles service for home and contents. I cannot vouch for the fairness or accuracy of this site but what is shown here is not pretty.

The whole issue is not simple. In one of the price comparisons quoted by Prof Fels, Allianz comes up the least expensive. This does not mean they have an inferior product. Generally their policies are very good as is their claims service but I for one would never ever ever look at buying insurance on price alone.

What is missing from the Fells argument is the issue loyalty. You would expect that if two people made the same claim and it was grey. If one had been a loyal customer for 5 plus years with a claims free record an insurer would be more inclined to give them the benefit of the doubt and pay the claim than someone who clearly showed no loyalty chopping and changing each year. If Insurers move away from factoring in loyalty and claims experience then they deserve what they get.

Home and contents and car insurance are one thing, when you move to business insurance and particularly professional lines such as professional indemnity and directors and officers insurance, my strong advice is do not shop around on price. Choose an insurer you trust and stick with them. Sustainability of insurance is of paramount importance with these products.

The whole issue is complex, that is why I use an insurance broker even though I know just a little bit about insurance for everything, including my home and contents. Even then, if my broker only came to me recommending I chose a product on price alone, I would change brokers. My broker, does not do that and so I stay with them as they know my business, my home, and my risk appetite. I trust them and they me and I treat them as a trusted adviser.

Sorry for the rant but having handled claims for nearly 50 years, articles the one I read yesterday cause me to see red! They may get a headline but as an economist, I would have thought some consideration would have been given to the cost to our communities, state and federal economies if the wrong insurance is taken out.

Key lesson for any accountant, economist or consumer: Insurance is all about PROTECTION, not price!

I for one wished as much emphasis was made on the difference in petrol prices which is a homogeneous product, delivered well self served, and yet has massive differences. Explain that one for me Mr Fells. When it comes to insurance “oils ain’t oils”.

I am even bold enough to modify Mr Buffett’s often quoted phrase to Price is what you pay, Value is what you NEED when it comes to insurance. 

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