I spend much of my time speaking at conferences for various industries, where I encourage the business owners not to purchase their business insurance on price, but to carefully consider how important their insurance program is and the protection that it offers.
Increasingly, over the last few years. I have been questioning the true value of a procurement officer, for regardless of what the tenders say, it seems to come solely down to price, without considering the true value that a good service provider to the insurer provides, nor the cost of what getting it wrong does to the average claims cost and potentially to the brand of the insurer and insurance in general.
I will give two examples to demonstrate what seems to be happening more and more.
The first involves a couple in their 70’s who have had their home destroyed during a bushfire over 4 years ago. Clearly, the builder that won the rebuild never expected to win the job and thought the matter would be cash settled. They were then horrified to find that they in fact had won the tender to rebuild. After 2 years, work had not started on the property and the Insured, naturally, complained. The builders found themselves busy at that time and engaged another building firm to do the work and it went along swimmingly until the first progress payment went in from the second builder to the first and they realised that they were going to lose more money in having someone else do the work than they themselves completing it. The first builder, original tender winner, dismissed the second builder and took the project on. Sadly, they did not start doing any work since the dismissal of the first builder, by which time I was then asked to get involved rather than the client go to the media.
I carried out an inspection of the property and then attempted to meet with the claims officer concerned to express some very valid concerns of the Insured and items that I had seen during my site visit. My first email was ignored, so I sent a follow up one setting out just some of the issues, three of which were:
- Between the second and first builder, the floor had been propped up in the centre of the home with nothing more than a piece of 19mm x 35mm pine framing. This may have been acceptable while the home was being built to floor level, but once the upper level was on it, the floor had bowed by at least 10mm and I was concerned that when the home was jacked up to be made level again, any works inside including plaster finishes, tiling etc may crack.
- The builder had held discussions with the Insured and it was agreed that the home would be rendered at the Insured’s expense. No credit however had been given for the fact that the builder would therefore be able to use seconds bricks rather than first quality as originally quoted/agreed.
- Because the home had been left without a roof covering for so long, there was mould clearly visible on the floor, framework and particularly between the floor plate and the floor.
I got a very disappointing reply back suggesting that to the untrained eye the timber prop may appear dangerous, but it wasn’t, and secondly that the bricks were not seconds but mixed, and thirdly they completely ignored the mould.
Ultimately, an engineer confirmed that not only was the timber ‘support’ dangerous as I predicted, but was so weak that it may have caused the entire home to collapse. The claim officer had also misunderstood the difference between seconds bricks, being that they were not first, and second hand bricks which means they came from another site. The day after they received my letter, the builder was advised and immediately sheared up all the framework, hiding the mould that I had pointed out, without treating it first. Because of the hype around mould at the time, coupled with the age of the Insured’s (I would remind you they are in their 70’s and the wife quite frail), I thought I would have it tested. I then received a note advising I had vandalised the home.
I took the entire issue to the national head of claims for that particular insurer and while someone with more experienced was appointed, it still took a full 15 months to get resolved with the insurer agreeing to cash settle the claim. The cost of the claim had blown out by several hundred thousand dollars, combined with the fact that they will be paying rent until they can get a new home built themselves.
Insurance should be there to help people in their time of need.
This was a completely innocent fire from the Insured’s perspective (it was clear it was from the bushfire) and they will have been without a home for coming up to their 4th Christmas. This is unacceptable in anyone’s language.
The second example, involves an insured who had water damage in their home. Rather than engaging a loss adjuster to oversee the claim, the insurer decided to save money and send out a restoration company. It took 8 days for the company to even attend site, and rather than take a detailed inventory, they simply packed everything up, put it into a shipping container and assured the Insured that it would be unpacked at their warehouse, separated between wet and dry and that the wet items would be cleaned carefully and sterilized.
6 months later, it was found that the items were still in the shipping container and a vast majority of the contents, even those that were not originally damaged by water, had become affected by moisture and mould etc. Some antique furniture which had been beautifully French polished had been stripped back and sprayed with a cheap lacquer. Here, the insurer is trying to distance themselves from their agents, which of course, is unconscionable. Here again, a claim has blown out dramatically due to poor service delivery.
These are just two claims that have come across my desk, and for every one that does, I question how many others are out there. In both of these cases, how many people have these insureds discussed and expressed their disappointment with the insurance industry and the particular brands involved. The first one I had to get LMI Legal involved to resolve, and it appears from the approach on the latest water damage case, I will have to do the same, for at this stage there still appears to be absolutely no empathy for the Insureds position whatsoever.
While I am annoyed with the claim process, I think it all starts at the procurement stage. Buying services is not like buying washing machines. If you have a highly competent professional who has studied, has years of experience, then of course their hourly rate is going to be slightly higher if they are honest and only charge the hours they work. The existing procurement process, appears to favour the shortcut takers, or those who cheat the hours. Either way, the insurer misses out on engaging the right person for the job.
What disappoints me, and I feel should be called out more is that despite this being a huge dispute, the Insured has not been given any advice of the internal complaints procedure, their rights with the Financial Ombudsmen Service (FOS) etc. This confirms one of the many examples I have that some insurers are able to obtain a better rating with FOS.