Is Insurance Loaded Against the Customer?

Insurance is a public good and all should get insured – all insurance professionals work for this. However, there is a dark side to this. It is clear that in case of a large loss an insurance cover may be the only hope for survival and sustainability for those insured. Insurance contracts are unfortunately complex in terms and conditions. Knowledge of the coverage is patchy and based on hearsay for most insureds. Therefore, disputes keep happening in insurance in many ways. In case of large claims disputes would seem to be inevitable. The nature of the insurance transaction virtually guarantees them. Insurance contracts are a particular form of contract, known as “aleatory” contracts, under which performance is not simultaneous; rather, one party performs first and the second party performs only if an event in the control of neither party occurs. The insured performs first by paying premium, and the insurance company is to perform the second, but only if a covered loss occurs.

Insurance is a credence product and unlike a physical product, one cannot simply walk out of the deal. When the call to pay comes, often after many years of profitable renewals for the insurer, the indemnity offered can reach the insured as too little, too late and after going through various agonies, ordeals and efforts to break the credibility of the insured.

 Additionally, when a claim denial or short payment happens the insured will have fewer resources to contest the denial, as it will be under all types of financial pressure from the very catastrophe that led to the claim. Insurance promises made in contractual terms can have uncertain meanings and be subject to multiple interpretations or have meanings established through custom and practice, regarding which the insured may not be aware. Most insurance coverage disputes are not dealt with at the initial stage by courts, but by “negotiation” with insurers. Insureds are under an inherent disadvantage in negotiating: an insured cannot start the negotiations by asking for more than it lost, because it will be called “insurance fraud” by the insurer, but the insurer will often begin negotiations with a very low and unacceptable figure and all sorts of ingenuity and proofs will be required to inch it upwards. Under these circumstances, negotiations end up as compromises, which means that the insured will face a heart-breaking deficit.

Many features of property insurance virtually guarantee disputes.  There is almost never a sum that is owed or excluded with certainty in first-party insurance coverage. In insurance it almost always happens that insureds will realise with great dismay that those who work in negotiating and assessing claims are cold strangers, an entirely new set of people different from those who sold the policy. They are likely to have a closed mind approach to insured’s concerns and extent of real loss. Claims Officers will not get “gold stars” for paying a claim in full, rather they may be put to watch for being ‘liberal and friendly’ with claimant insureds.

Case Study

A manufacturer of metal products sustained heavy loss during the Hud-hud cyclone in 2014, described as the severest cyclone to visit Visakhapatnam. The insured filed a claim for Rs.35 crores. A senior survey firm was appointed by the insurer. They immediately sought insurer’s permission to appoint an experienced auditor to assess the claim, as the claim was for stocks in sheds, in the open and so on. The accountant sought 27 different types of lengthy account statements/books and then pulled all of them down as non-credible, even those such as audit by the Central Excise. This is in spite of the fact that the insured is a listed company with a full Board, a CFO and regular accounts and audits. Actually, the stock was physically available in the premises, a part of which was scattered due to the storm. No effort was made to describe or measure them, except the stock held in a covered shed.

It was seen on scrutiny of the claim that the surveyor was intent on scuttling the claim of the insured, whether on the basis of instructions of the insurer or not is not clear. The surveyor committed a whole series of omissions and commissions as seen in the final survey report. These included:

1.      No description of the loss is given in the report. It is essential to give this in any report. In a large scale natural catastrophe, it is a cut and paste job as government and other credible reports will be available in the public domain.

2.      The description of the extent of loss in the insured’s premises is not given although this is mandatory in the current regulations and a necessary practice in survey.

3.      The surveyor took 2 years to submit the final report, totally impervious to regulations and court orders. At that time the J&K High Court had ordered immediate on account payment by all insurers for the victims of the Kashmir flood in the same period. Insurers went to Supreme Court against this, but the Supreme Court refused to rescind the order of the HC.

4.      The surveyor refused the plea of the insured for on account payment.

5.      In the meanwhile, the surveyors worked on the insured to dishearten them in all manner possible and after a year got them to revise the claim estimate downwards to Rs. 12 crores, restricted to manufactured material lying in a shed, the roof of which was blown off in the cyclone as result of which the finished material was claimed to be total loss by the insured.

6.      In the meanwhile, surveyors kept harassing the insured with accusations of fraud and exaggeration. It is an accepted fact everywhere in the world that an ‘act of god’ cannot be a fraud as the insured can have no hand in the causation of the loss.

7.      Finally, they contrived to categorise the lost material as scrap material stored across time before the cyclone ( with insured waiting for a cyclone?) and assessed the loss for Rs. 2 crores. Rs. 35 crores became 2 crores.

8.      When the surveyor was questioned, they responded that it is their duty to save ‘money for the exchequer’ and that they have ‘judicial powers’ to decide on survey matters.

9.      The Insurer accepted the assessment and without any question. The insured was compelled to accept the claim as they had no option as they had been waiting for 2 years for the claim.

Balwinder Dhiman

Senior Branch Manager

6 年

In our insurance market, number of studies are conducted to address issues as published in the Article by P.C. James sir. Nevertheless the outcome of such studies creates little impact to address the problems. In the case study referred in article, we can realize that the surveyors methodology to assess the indemnity clearly destroys the principles of utmost good faith and it often happens especially in Property Insurance. It may called as 'INSURANCE ATROCITIES'. Insurer authorities forget that they are in customer driven market. Under the shield of Loss minimization and saving of exchequer, they are creating additional employment for Legal Counsels and raising spill over liabilities in their accounts. The issue is not only of claim settling disputes, issue lies in the structure and authority of insurance. No offences to any authority/Institution, I perceive that there is immediate need to make a gap study of expectation of insurance customer, perception of insurance intermediaries, Coverages under prevailing insurance products and existing regulations. This study would help our industry to identify the gap between Insurance Market Environment and Insurance Regulatory Environment. Hopefully, then only we could able to recover.

P.C. JAMES

Chief Executive Officer at Insure-Edge

6 年

Thank you for the interest shown in the article.

RAVISANKAR VENKATARENGAN

INSURANCE CLAIMS CONSULTANT FOR REPUDIATED AND DISPUTED CLAIMS.Now at TIRUCHIRAPALLI-620001-TAMILNADU

6 年

"Independent Insurance claims dispute resolution specialists" are needed in huge numbers all over India to take the side of the claimants on their behalf.Many retired Insurance claims managers can take this role for a fees to be paid by the claimant and then reimbursed by the Insurer.

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A V PRADEEP RAJ

General insurance professional with more than thirty eight years of experience in underwriting and claims.

6 年

At present there is dearth of claim handlers who are empathetic towards their customers but they take on the role of cost cutting managers to their employer.? The need of the hour is people with empathy, insurers would do well if they ensure such people man their claims operations. Being with empathy does not mean being liberal or paying claims outside the boundaries of the policy.? Yes one can be empathetic even when you say NO.

Satish Sharma

Passionate about motivating agents in the life insurance industry

6 年

The problems in most of the cases arise when the client wants to take up an insurance policy. He sees no value in a policy and does it for the sake of doing it by saying that he has been claim free for so many years so nothing is going to happen in future also. The client is always very casual in deciding on the sum assured which in most cases is a repetition of the expiring policy. The client does not take out the time to let his accounts give true value of stock. Buildings are covered at old values and finally negotiations are done with providers to continue to reduce premium with the industry known to give discounts up to 95% of tariff and reducing or removing or ridiculing the roles of insurance brokers as un necessary expense. In such unprofessional and irresponsible behaviour on part of the client disputes will naturally occur at time of claim when the client is ready to appoint a broker to help him with the claim and is ready at whatever cost to push the risk assessor and risk taker by whatever means corrupt or otherwise. It is a Sorry state of affairs but the root cause is the casual attitude of the customer from the very birth of the transaction. Clients need to respect providers and brokers and other intermediaries.

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