Insurers have always had a bad rap from the public, who often see these companies as greedy, quite ready to take our money in the form of premiums then only to turn around and refuse to pay claims in policyholders’ hours of need.
There is some truth in this, and readers of these pages will have seen examples of insurers initially rejecting a claim, only to back down when challenged by Moneywise.
But the coronavirus outbreak has brought a renewed wave of this negative feeling against insurers, with sentiment so strong it has left industry insiders reeling.
Both businesses and individuals have been outraged that claims brought due to coronavirus are being turned down, and some are taking legal action against their insurers.
But is this kickback against insurers right and, if so, should we all be doing it?
I am no shill for the insurance industry, and if I was, I would be typing this piece from my superyacht in the Caribbean rather than my kitchen table in lockdown.
But I do think many of the attacks against insurers are not justified.
There are cases of unfairness – some of these are mentioned by columnist Jeff Prestridge on page 23. But I think we should not let these few tarnish our view of the whole industry.
You might ask – why bother taking a stand on this particular hill? Why not pick up my pitchfork and flaming torch and join in?
The answer is that I believe our quick rush to bash insurers can actually be dangerous to consumers.
This is because the toxic sentiment that it creates can lead to us not buying insurance and being exposed to large losses as a result.
Insurers are an easy target. We are conditioned to believe that insurance companies are all money-grabbing fat cats, in the same way that we think all politicians lie, all traffic wardens are out to fine us unfairly or all journalists twist words. It has become part of the zeitgeist to think these things, and we let these beliefs go unquestioned.
Of course, all of these statements are untrue – or at least mostly untrue. But there is an odd part of our psychology that means our immediate response to insurers is commonly one of distrust. Too often when insurers refuse to pay a claim our knee-jerk reaction is to say “typical, they’re all like that”. A case where an insurer does not pay out tends to stay in the mind above countless other – less interesting – cases where the insurer does.
However, this mindset can be harmful when it leads to us not buying insurance out of a belief that we are throwing our money away.
While some insurance is required by law, notably for mortgaged properties and motor vehicles, the vast majority is not, but does offer vital protection for those who can afford it.
For example, what if a homeowner can afford to buy contents insurance but chooses not to due to absorbing negative feeling against insurers. If this person is then burgled, suffering large losses they then have to try to fund themselves, that is a horrible result for them.
Putting your own money away to cover losses, known as ‘self-insurance’, can work in some situations but is largely restricted to the already wealthy. How many of us would have enough salted away to pay for thousands of pounds in losses without taking a hit in another area of our lives?
Insurance was invented hundreds of years ago to solve this exact problem. Ship captains meeting in London decided if they each put a small amount of cash into a pool it would protect against any one of them suffering life-changing losses if a boat sank. That principle is as helpful now as it ever was.
Additionally, insurers have a whole support system that kicks into gear when a loss happens. In the above burglary example, in the aftermath of the loss you may be distressed and in no fit state to handle the loss yourself. Insurers are not monsters and pay the vast majority of claims they receive.
The insurers that do turn down claims wrongly should be called out and made to correct their ways, and I personally look forward to helping with just this in the future, as I have for some years already. If many of the current coronavirus grievances against insurers are fair, then these claimants deserve their money and I wish them all the best.
But let’s not allow negative cases put people off insurance in general. Blind outrage will get us nowhere, and if it means just one person suffers an avoidable uninsured large loss, then that is a tragic outcome.