After more than 30 years working in insurance, first learning the ropes in large corporates, now working as an independent broker and consultant, it seems to NCF member, Adam Penny, that some things never change. People wanting a bargain without understanding the consequences – or perhaps being naïve enough to think “it’ll never happen to me” – is one of them.
Why is it that people have a total double standard when buying insurance? For most other purchases, we tend to be quite realistic. “Oh, those supermarket trainers I bought have just fallen apart, but then I did only pay a fiver for them!” We understand that we get what we pay for – until it comes to an insurance policy.
I often hear people say they found ‘bargain’ cover online. I always ask how they know it’s a bargain if they haven’t had to claim on it yet. And to all those who I hear say “insurance companies never pay out anyway”, my response is “well, then you probably weren’t covered.” I’ll give you a good example.
Big house, small spender
I was arranging house insurance (buildings and contents) for a client – let’s call him Dave – with a sizeable property in a desirable location. The insurance provider said that Dave is required to install a burglar alarm. Dave didn’t want to spend the £ 3,000 or have to switch it on at night and when they leave the house. Although the insurance cover was subject to the installation of the alarm, Dave did not have an alarm installed. A short while later, Dave was burgled. Thieves stole £148,000 worth of property and caused around £ 9,000 worth of damage getting in. After an investigation, the insurance company wouldn’t pay out because the burglar alarm hadn’t been installed. The insurer also cancelled and voided the policy.
Ironically, had the alarm been installed but not set, the insurance would probably (probably) have paid out. Dave’s was a Private Client Home policy, working on a ‘best endeavours’ approach; if he’d installed the alarm as they wanted and Dave tried to remember to set it every time he left the house, he would have made his best endeavour to protect his property, satisfying their conditions. (I had another client, very nice house in London, who had over £100,000 stolen and their insurance paid out on this basis.)
Have you ever had a policy cancelled or voided?
Dave’s problem, going forward, is that he has now had a policy cancelled. This is going to be something he has to declare from now on every time he buys insurance (and there is a register of these things so insurance providers can check anyway). As a consequence, it’s likely that he’ll either be refused a policy or his premium will be hiked up. (That £ 3,000 saving on the burglar alarm looking even more short-sighted.)
Do you know what your house insurance really covers?
You might be surprised to learn what most domestic policies actually cover: how familiar are you with yours? For example, I know of people who take out separate bicycle (push bike) insurance. If they accidentally cause damage while cycling, the want the public liability insurance to cover that. However, it’s worth checking your existing household policy as you may already be covered for that.
The same is true with pets, even horses, as far as public liability for damage they may cause. It would be unlikely for a domestic policy to cover pet medical bills, of course, but public liability might be something you don’t need to pay for in addition to this, perhaps keeping your pet insurance premium down.
Many domestic policies also have a limited level of employer’s liability insurance, too. Although you might not consider them an ‘employee’ in the strictest sense, your cleaner or the chap who comes to trim your hedge are working on your premises. Should they have an accident while doing that work, you may find you are already covered if they chose to claim against you. I’m always happy to help advise on what you may or may not be covered for, of course.
When can you really claim against someone else?
The issue of ‘negligence’ is another misunderstanding that I often come across. An upstairs neighbour in a flat has a burst pipe and the downstairs neighbour wants to claim on the upstairs neighbour’s insurance to cover the water damage, for example. Why? The upstairs neighbour didn’t intentionally have a burst pipe, they could not be said to be negligent, so why should they pay for someone else’s damage? The downstairs neighbour should be claiming on his own insurance, if he wishes, to pay for any repairs.
A cheap policy could be an expensive mistake
For me, it’s not about just selling someone the most expensive policy I can but about finding the right policy for them. I will always have a conversation with a client to understand what they need, as well as what they don’t. The wrong policy – whatever it cost – is a waste of money, but the chances are that you won’t find that out until it’s too late. The right policy is one that covers the eventualities that you need it to, that gives you peace of mind in knowing – should the worst happen – at least you’ll have the finances to get back on your feet again.
The right policy is priceless.