By Donald Dinnie, CEO of Natmed Medical Defence
Spare a thought for Momentum and its Ganas Life claim debacle which occurred towards the end of 2018. Momentum was correct in law in avoiding the insured’s life policy for material non-disclosure, a position affirmed by the relevant ombudsman, but lost in the court of public opinion after a social media and public relations firestorm. Where to from here?
Transparency, education and expectation continue to bedevil the insurance relationship.
And this, despite extensive regulation of the industry.
2019 presents the opportunity to all insurance role players – insureds, insurers and reinsurers, regulators statutory and voluntary, intermediaries, insurer and consumer organisations – to commit themselves to playing their role in ensuring a new era of insurance education and transparency.
The current default position (admittedly a blunt generalisation for purposes of this robust discussion) in the personal lines industry from the insured’s perspective, is that the insured pays a premium and expects all claims to be paid. Further, any denial of a claim is the insurer’s fault. And the insurer eyes all claims with suspicion.
This disconnect results in an insured seeing no moral turpitude in an exaggerated (if not outright fraudulent) claim and having no understanding of the duty of disclosure. There is clearly little appreciation of the reciprocal duty of good faith that insured and insurer owe each other.
Perhaps, the first step is for everyone to stand back and acknowledge a failure in general levels of education/understanding of what insurance actually involves; how it works or doesn’t work. Then, we should implement an appropriate education programme, which has been absent from our society for decades, beginning at school level. It was not my experience at school (now, long ago) nor, much more recently, that of my children, that any insurance (or financial) education was included in their Life Orientation studies. Insurers court graduate professionals on the often incorrect assumption that they understand the fundamentals of the insurance contract. All of the role players referred to above have a role to play in the education process, with an agreed common curriculum being of the essence.
That education should include what the effect of a claim may be – good, bad, fraudulent or exaggerated – on the risk pool and its funding, the reason for proper disclosure, how it is relevant to underwriting risks and the effects of a material non-disclosure, that the parties to the insurance transaction have both rights and obligations, and that these extend to the reciprocal duty of good faith which insurers and insurers owe each other.
It is the duty of good faith – which is most commonly misunderstood, or incorrectly applied by both insured and insurer – that results in a lack of, or a perceived lack of, transparency as well as differing expectations.
Maybe the first lesson should be about how the opening paragraphs of any contract of insurance should, in plain language, record a reciprocal commitment by the parties to the contract to always conduct themselves in good faith in all their dealings with each other – and why this is important.
This should apply when negotiating the insurance contract; concluding or renewing the contract; and making or dealing with a claim. It could also include the principles of Treating Customers Fairly.
Successful education would go a long way towards properly tempering and managing the parties’ reciprocal expectations.
Community-based risk solutions and mutual insurance, such as peer-to-peer insurance, are an attempt to deal with a few of those expectations and issues of transparency.
Scalability of such an offering is another debate. Any successful peer-to-peer offering is as dependent on successful education, and properly managing transparency and expectations, as is any traditional insurance offering (the mutual insurance concept is, in fact, not new … but that is another history lesson).
The test always arises when the claims come in. How are claims to be managed by the peer group; what are the approved mechanisms; what level of transparency in paying or rejecting a claim, and naming and shaming a transgressor (with all its data privacy and defamation and injuria issues) is agreed; and how will the group manage a claim when a dissatisfied member resorts to social media because they consider themselves hard done by their peers. Will that insurance community (and its administrators) feel offended and pay heed when the social media community – who are overwhelmingly not part of that insurance community and have no financial risk in it – express a view?
The situation is more complicated when the insured has died and their levels of education, transparency and expectation regarding the policy are different to that of the claimant beneficiary.
Which returns us to Momentum and Ganas. Obviously the negative PR, and presumably threats to terminate cover from existing policyholders, was enough to be a mind changer. Whether most of the indignant voices held any life insurance cover at all, or with Momentum, is unclear. But that is not the point in a world of social activism. Public expectation was. Education and pro-active transparency may have produced a different result.