The privilege of insurance?

Recent PR statements from insurance industry spokesmen have given the impression the insurance industry is swamped with fraudulent and exaggerated claims and that they are manfully manning the barricades fighting for morality and justice. It a similar pattern of thought to the Prime Minister misguided attempt to equate morality with paying a tax bill. R spin aside, if morality is being introduced as a factor, perhaps the question should be asked whether the insurance industry should continue in its present form?

The general principle behind insurance is at heart a good one. A community pools resources together to insure against the risk that catastrophic events will befall some of its members and ensures as far as possible affected members can be put back in the position they would have been. The pooled resources are then used to make a profit to ensure the pool can meet the likely risks and reward the enterprise. Insurance works on the principle of good faith and trust, given that any claim represents a claim on communally held resources. That is why all insurance companies still refer to their policies as contracts of the utmost good faith. The idea of insurance as a 'good thing' is something that is heavily ingrained in the subconscious of this country. It is not a view that is necessarily shared or prevalent across the whole of the world. It was not so long ago that the 'man from the Pru' would still make door-to-door calls to collect premiums and was trusted to advise the general public on how to take steps to protect against that 'rainy day'. That was followed some years later by the news of the pension mis-selling scandal and millions being paid in compensation.

Recent PR statements from the insurance industry equate making a claim on an insurance company to something of passing a morality test. This ignores the fact that as a policyholder you may have simply provided the information asked for, paid the requested premium and then sought to take the benefit of insurance once it has been triggered by an event. The simplistic underlying inference from these announcements from the ABI seems to be insurers exist to protect the good, but all those that claim are bad. This is most easily shown in the field of personal injury, with all the headlines of rash for cash reedy ambulance-chasing solicitors and Britain as the whiplash capital of the world

Behind the headlines however, all of those that work in this area of law now the practices of the household insurance companies which include:

  • Make profits from passing on details of policyholders- without ever declaring that practice to the policyholder.
  • Allow their confidential data to be 'stolen' and end up in the hands of 'data farmers' who sell those details on, so the public become the subject of spam texts and emails.
  • Operate and own their own legal practices, without spelling out the intricate links between them and the law firm to the general public.
  • Operate and own their own linked companies along each stage of a claims process, from medical agencies, hire companies, rehabilitation practices and so on.
  • Put up obstacles to the public who wish to exercise their freedom of choice of solicitor away from their 'panel' firm.

Have you ever received a cold call or text about an accident you have been involved in? A loan you may have once taken out? Have you ever wondered how the person calling got your details? Have you ever been told how much money changed hands for that organisation to obtain your details? If not, do you think you should have been given that it is personal information about you? One household insurer was reported in 2013 to have made a total of over 125m in referrals business. Who or what do you think was being eferred

It will be of interest to see how the insurance industry reacts to the storms and floods this winter and the political pressure they exert, given their power as a lobby group. It may have been the wettest winter for years, but the evidence suggests that the flooding was worse in 1947 and the risk of flooding in the affected areas is therefore not unprecedented. The fact that insurance companies may have underestimated the risk and set premiums at the wrong level is the same as for a bookmaker who sets the wrong odds on a horse race. Bookmakers do not ask for a change in the law if the favourite romps home in the Grand National. Some you win, some you lose. The moment Joe Public makes a claim from an insurance company in a time of genuine need whether this is for flood damage, or as a result of a car accident, should not be viewed as a political statement or a strict morality test, particularly from an industry that has far from clean hands.

Why should insurance companies be allowed their privileged position? The behaviour of the financial institutions over the last couple of decades, particularly by the same household insurance companies currently preaching to the public, when designing opaque insurance schemes mis-selling products which in reality are not worth the paper they are written on, or in putting up countless barriers when dealing with claims made on any such insurance. In reality few question the existence of such institutions. A system where a guilty institution promises not to do it again, pays a large fine, and in the meantime designs another product to sell to the public with little sanction when its deficiencies it the headlines years down the line suggests there is something wrong with the system. Should we be looking to cure the disease, not the symptoms?

After a fire in Great Tooley Street in 1861, the worst in London since 1666, the existing insurers sought to increase their premiums extortionately. The traders affected by the fire did not like the demand for increased premiums and decided to set up their own insurance company, Commercial Union Fire Assurance Company Limited, one that operated on new and innovative principles. any years later Uhas evolved into Aviva, possibly now the sort of organisation they were originally set up to confront.

The behaviour of the financial institutions over the last couple of decades, particularly by banks and insurance companies in selling insurance and in dealing with claims made on such insurance, should bring into question the basis for their existence in their current form. Insurers are in a privileged position, operating as private companies backed by the state which makes insurance compulsory in some areas of life. The numerous mis-selling scandals show such companies regularly abuse their position. Given the repeat pattern of behaviour exhibited by the industry, perhaps we should take them up on their wish to view insurance as akin to a test of ethics. Perhaps it is time to reconsider their privilege and the need for their existence at all?

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