Insurers don't really pay 99.9 per cent of claims

Tuesday, 5 November 2019

Insurance company premiums increase 500 percent due to a new risk management strategy.

Insurers like to say they decline less than one per cent of claims, but Tower chief executive Richard Harding revealed around a fifth of all claims made were 'withdrawn' by policyholders.

The general insurance industry was struggling with low, and still falling, levels of trust, Harding said at the Insurance Council of New Zealand conference in Auckland on Tuesday.

He laid part of the blame on the 20 per cent of claims that were 'withdrawn' by policyholders, because while these claims hadn't technically been declined, that wasn't how it felt to policyholders.

Richard Harding chief executive of Tower Limited.

'So 20 per cent of customers think there is some trick, some technical clause, or a reason they don't really understand about why we can avoid paying their claim,' he said.

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'As an industry we proudly go out and talk about the fact that we pay the vast majority of claims, and only a minute number are declined. And that may be technically true, but is that what customers think? Is that what they actually experience?'

People withdrew claims after being advised by their insurer that their claim was not covered by their policy, and if they persisted with it, would not be paid.

'At Tower, and I'd be surprised if it were different across the industry, one in five customers end up with what we call a withdrawn claim,' he said.

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'It is no wonder that confidence is at an all-time low,' Harding said, saying Tower intended to get withdrawn claim levels down.

Part of the problem was people did not understand what their policy covered, but Harding did not blame them for that.

Instead he chastised the industry for creating complex policies, saying he had challenged his staff to create two-page insurance policies in plain English.

'We incorporate complex jargon into our policies that even some of our staff and lawyers struggle to understand,' he admitted.

He also blamed insurers for failing to recognise the honesty of the majority of their customers.

'We design our processes to capture the 1 per cent of insurance fraud, not to care for the 99 per cent of legitimate customers,' he said.

Trust, and treating customers fairly, were the big issues of the morning at the conference with both finance minister Grant Robertson and Reserve Bank of New Zealand governor Adrian Orr speaking.

Robertson told the conference he was concerned risk-based pricing, which has seen some owners of earthquake-prone homes facing huge premium rises, could undermine trust in insurers.

Tower was the first insurer to launch into risk-based pricing last year.

Helen McNeill, chief risk officer at Suncorp, which owns Vero and 68 per cent of AA Insurance, said before the Christchurch earthquakes insurers competed on price.

After the earthquakes, the competition was on how they handled claims.

Now, she said: 'Make no mistake about it … we are competing as an industry on trust and transparency.'

Insurers had to get better at measuring good customer outcomes, she said.

While some private insurers, Tower included, have been criticised for poor behaviour, delegates to the conference felt strongly that botched repairs on thousands of Christchurch homes by the government-run EQC, and the behaviour of government-owned Southern Response, which withheld information from policyholders, had both dragged down perceptions of insurers.

Following a damning report by the Reserve Bank and Financial Markets Authority on the life insurance industry, Cabinet agreed in January to fast-track new consumer protection laws following a damning report on the insurance sector.

The government was also awaiting the inquiry by Dame Silvia Cartwright into the behaviour of EQC before deciding how to reform it.