The need to consider claims service and policy coverage, not just price, when purchasing insurance
In the last week I tried to hold discussions with an insurer who would not make a progress payment on business pack policy. This is the fifth claim I have had with this one insurer and it is the fifth time I have asked myself why anyone would ever want to insure with them.
In this latest incident, the fire happened over a year ago and the Insured is being delayed in getting council approval as the council have withdrawn the special purpose zoning for the area. This may take years to sort out and the Insurer refuses to make a progress payment based on the indemnity value, which I believe in any event is way below what it really is. They are saying you can have the Indemnity Value but once this is accepted, the claim is at an end. This is despite the policy saying that the insurer will not make any payment beyond the indemnity value until the money is expended. This, in anyone’s reading, clearly shows that they should be paying the indemnity value as a progress payment. To me, it is a breach of contract and also a breach of the Insurance Contracts Act 1984.
Another problem on this claim is that the broker was not aware that the policy was a GST-inclusive one and that therefore the Insurer will never pay out the sum insured but only 10/11ths. This, as I reported back in my posting in November 2011, catches a lot of people. In this case, the need to include GST in the sum insured is hidden on page 47 of a 49 page contract of insurance. It is not mentioned on page 4 where the policy provides an example of the test for under-insurance.
This insurer is also refusing to entertain a claim for loss of land value due to the re-zoning following the fire. The reduction is estimated at over $1 million whereas the cover is allegedly $100,000. If they do not want to pay such claims why put the cover in the policy?
This same insurer was heavily criticised by the media over their treatment of flood. At the time they were not a member of the Insurance Council of Australia, nor where they a signatory of the General Insurance Industry Code of Conduct. They and a few others have since signed up following the Trowbridge report in the hope of avoiding government regulation.
Very few of our claims go to court but virtually every one we have done has had to go legal to get any sort of result.
Other issues that brokers should be aware of is that under their Contract Works offering the test for co-insurance on existing structures is based on reinstatement and replacement conditions, whereas they will only ever pay out a claim on indemnity value even if the Insured wishes to reinstate.
In a crane claim, the matter had been going on for 2 years when the broker asked us to review the file. Through the discovery process we found a report on the Insurers file from their own engineer advising that the basis on which they were denying the claim was incorrect. Once we pointed it out, the claim was settled but the Insured had already spent $50,000+ in legals and had lost sleep for 2 years. As it was, there was right of recovery from a third party in any event.
Whether you are an insured or a person advising on what insurance and/or which insurer to place coverage, the price should not be the primary consideration. In each of these cases the Insured would have gladly paid double to get the cover and fair go that they and I believe they and any insured should be entitled. The extent of policy coverage, the level of claims service and the financial rating of the insurer should all be carefully taken into account.
When my colleagues and I are looking after a claim, these issues come to the fore. When dealing with the likes of this company (I cannot name them at this stage as this matter will be going to court), it is always a fight and the broker loses sleep, often a client and the brand is damaged, they and the insurance industry suffer and all agree it was simply not worth any perceived saving.
I urge all readers to take each of these issues into account when you next make your buying decision. The total cost of risk is not the premium. Premium is the cost of transferring risk to an insurer. The total cost of risk includes the net loss to a business for uninsured losses (intentional and unintentional), policy excesses, the amount not paid due to penalties for under-insurance and the funding cost where an insurer does not pay a legitimate claim in a reasonable period.
As for the GST issue, you can quickly determine if the policy is GST-inclusive (dishonest to my way of thinking as the insurer never pays it without recovering it as a Input Tax Credit) or GST-exclusive the honourable way by using www.PolicyComparison.com.