ADVISORY COLUMN: Sometimes it’s best to divorce your insurer
QUESTION: My wife and I own two vehicles - a BMW and a Toyota Corolla. Insurance for both vehicles is up for renewal. The new valuations are as follows: The BMW was valued at $1.8 million as compared to $2.1 million last year. The value of the Corolla was reduced by 10 per cent from $1 million last year to $900,000 this year. The renewal premiums for both vehicles are higher this year than they were last year.
I was advised that the rates go up when the valuations fall below $2 million and $1 million and that if the estimates of values remained at or above those amounts, the premiums would be less. I can understand if I was advised that there is no reduction in premium if the valuations are less than last year's, but to be told that there are higher smacks of robbery. Is this really right or even legal? Can the insurance premium for the same vehicle be actually higher if the valuation is less, especially bearing in mind that the pay-out would actually be less if an accident occurred?
- A.H., Mandeville PO
INSURANCE HELPLINE: Your question was posed on January 19 - the day after the first of my two-part series, "Are insurance customers treated fairly?" was published. Your main point is that you believe that your insurer was being less than honest in its dealings with you.
Given the tone of your email, I did three things after I read it. I asked you to identify the insurer and sought your agreement to send a copy of the email to a company official for comment. When I got your okay, I sent the email to your insurer's Kingston office.
I did the third thing when I sat down to write this article two and a half weeks later. I examined your comments and your insurer's against Insurance Core Principle 19 - Conduct of Business of the International Association of Insurance Supervisors, to which Jamaica belongs. The IAIS ICPs were the subject of the January 18 article.
The company official wrote: "I will comment on the vehicles separately as the issues are different.
"Toyota Corolla: The policy was changed from comprehensive to third party at renewal in January 2014 and the insured was charged the same amount, which is our minimum third-party premium, then and at renewal in January 2015. The sum insured on this vehicle for the 2013 to 2014 period was $800,000.
"BMW: The sum insured on the BMW was reduced from $2.09m to $1.9m at renewal in May 2014. Our rates for private cars are set by sum-insured bands, and occasionally, we do have the scenario where the premium is higher on a vehicle which moves from the low end of one band to the high end of a lower band. In these cases, we do not increase the premiums.
"This happened in 2014 and he was charged the same premium as for the 2013 to 2014 period. His next renewal is in May 2015, and renewal notices have not yet been prepared for that month. We have not received a new valuation form ... nor would we expect to get one at this point, and we have no evidence of any member of staff having quoted him a premium for this value. If [client] has any other information which could assist, I would be happy to look into it further."
The company official took two days to respond to your complaint. This was impressive. She also won a few rounds on matters of detail.
However, when the company's response is examined in the context of the IAIS's Insurance Core Principle 19, it lost the fight. For example, ICP 19.2.2 speaks to "asymmetry of information that tends to exist between the insurer and the individual retail customer".
The company's reply fails to recognise your ignorance of their rating bands and, therefore, does nothing to specifically address your charge of robbery or to persuade you to understand their point of view.
BusinessDictionary.com defines information asymmetry as a "situation that favours the more knowledgeable party in a transaction. In most markets (especially where the goods [including services like insurance are] being traded ... a seller [the insurer] is usually in a more advantageous position because his or her store of information is based on numerous sales conducted over the years. A buyer's information, however, is based usually on experience of only a few purchases."
The reply from the insurer is also deficient in that it does not meet the standards of clause 19.2.4. It does not: a) provide clear information "after the point of sale"; b) ensure that "any advice given is of a high quality"; and c) "manage the reasonable expectations of customers".
Since the May renewal date of your BMW is three months away, there is sufficient time for you to shop around.
Your goal should be to see if you can obtain comparable coverage with another insurer at a lower cost.
After all, the insurance business is conducted on free-market principles. You have the right to divorce your insurer if you have evidence that you are being treated unfairly.
n Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: email@example.com.