Insurance Perspectives

It is not commonly held that insurance cover reduces risk. Insurance is seen as a necessary evil; not as an enhancer of personal lifestyles and business wellbeing.

Risk is described as the effect of uncertainty on our personal objectives. It ought to recognise that indeterminate events do often produce negative outcomes; but this is seldom the perception. Far too often, insurance cover is viewed as a niggling annoyance. This is unfortunate and MMPI believes that insurance managers need to show more ingenuity in having their message understood by needy consumers.

Consumers should also re-envisage how insurance works best for them. A certain percentage of consumers enjoy the experience of shopping around online for bargain basement pricing – rejoicing in their achievements. However, adopting this approach for the purchase of insurance is fraught with danger. A cheaper insurance premium may be counterbalanced by less insurance cover or by a higher excess (deductible). Cheaper insurance may also mean less quality of service in the case of a claim.

Researchers suggest that risk can be represented as a series of hazards and opportunities. But behavioural attitudes determine that, what is seen as a profitable window by some, looks like a dangerous undertaking to others. Trying to establish how the uncertainty plays out is a great way to challenge the opposing attitudes. Legacy experiences are good markers – allowing that past performances are not necessarily indicative of future outcomes. Learning from other disciplines is also extremely useful. For example, in the pharmaceutical world they’ve coined the phrase “harm reduction” to describe their activities around risk limitation. This seems sensible.

Fundamentally, insurance should help reduce pain. This is most evident in the event of premature death or impactful serious illness. In both cases the financial pay-outs provided by insurance cover assuage the negative outcomes. Therefore, given such beneficial consequences, why is it that most personal non-life insurance policies revolve around an inconvenient 12-month cycle? We accept that businesses come and go but most survive for more than 12 months. People do move house; but they normally stay longer than 12 months. Surely, more insurance policies should run for greater than 12 months!

Unfortunately, the financial industry has never been keen to innovate too far from traditional norms – preferring instead to strut and swagger with apparent nonchalance. A 20-year house policy would sit neatly next to a 20-year mortgage and 20-year life cover. But, alas, insurers insist that house policies must be re-negotiated every year. Why? We acknowledge that personal circumstances change; and that the history of claims will vary between households. Nevertheless, there must be merit in packaging personal insurance in such a way that policies last for longer than 12 months. There must also be merit in amalgamating different types of consumer insurance to produce umbrella policies that cover multiple risks.

Innovation and regulation appear to be the key stumbling blocks. Innovation is hard to implement; and regulation does not condone the bundling of financial products. These are onerous but hardly insurmountable obstacles!