When people buy insurance what they’re really buying is peace of mind. The peace of mind that means you know that, if your house is burgled or you fall ill while on holiday, you will be covered. So let’s be clear, making a claim is the moment at which the value of insurance crystallises for the customer. Of course, that is not to say that only customers who claim get value for money or good service. Those who do not claim have the security and peace of mind that they are protected.
The thematic review of personal lines claims announced by Martin Wheatley will, we are told, examine “whether there is a case to answer” in criticisms that the insurance industry has to do more to ensure that it delivers on its fundamental obligations to pay valid claims when they’re due. That means giving customers both the standard of service they have a right to expect during the claims process and the outcome they were led to expect when they took out the policy.
As we take forward this work – in which ABI will be actively engaging – we must ensure that we do not look at claims in isolation. I’ve heard it suggested that insurers’ approaches to claims fit into one of two broad categories – one focuses on achieving customer satisfaction and the other focuses on managing cost. These might be helpful descriptions of the opposite ends of a spectrum but in practice these two approaches are not mutually exclusive.
Insurance is all about pooling; insurers have a duty to all customers including, but not limited to, those who claim. Managing cost efficiently is in the interests of all customers. To take the extreme it would not be cost efficient to pay fraudulent claims – nor would it be fair to honest customers! And we should not forget that, our estimates indicate that undetected fraud costs around £2bn a year.
In addition, insurance products are designed to cover a wide range of different needs. And a claim under one product may look very different from a claim under another. Some claims are paid as one off cash sums, others take the form of periodic payments and some are settled as goods or services. This means that different approaches to claims are required for different products and the review must take that into account. For that reason I’m pleased to note that this review, while looking at themes across general insurance, will have a particular focus on two products, household and travel. That said, it must also recognise the wider regulatory context, and connect to the transparency paper recently published by FCA which suggests the publication of claims data.
Claims are hugely important and we know that it is indeed true that putting in a claim often happens at a very stressful time in people’s lives. It follows then that the industry recognises the importance of the question Martin has posed to us today: “Is your claims culture fit for the modern world?” ABI will be engaging actively with our members as the industry asks that question of itself, and with the FCA as this work progresses.