Navigating the murky waters of insurance cover
Choosing the right kind of insurance cover goes far beyond calling up an insurer, and the communication should never stop once you have signed up.
When signing up for an insurance policy there is no one-size-fits-all. It is crucial to understand your unique circumstances so that you get a policy optimally fitted to your risk profile, needs and lifestyle, says Mangaliso Noholoza, a senior manager at a prominent insurance company.
“First, I would always recommend shopping around. Look at more than one option. We live in an environment where the market has changed a lot. It used to be that insurance worked primarily through brokers, but now there are a lot more insurers that deal directly with customers,” says Noholoza.
Honesty is the best policy
Whichever option you choose, the most critical component, he explains, is that you are absolutely upfront and honest with your insurer when disclosing information: “For example if you fail to disclose a pre-existing illness, your insurer can decline your related claim even if the claim only occurs five or 10 years later. Honesty and integrity are a vital part of ensuring that you get the best possible coverage.”
Besides ensuring that you are covered from your claims being declined, he explains that the more upfront you are, the better your chances of customising a policy that suits your needs.
“Say you’re a photographer whose work requires you to fly frequently to different locations and you’re often not home. In that case your car might regularly spend a significant amount of time parked at home, while your camera, cellphone and laptop are always with you as you travel.
“That would affect your risk profile when it comes to your car which is less likely to get into an accident, while someone who commutes regularly to work in their car would have a different risk profile. Similarly, your work equipment might be affected differently as there is a greater chance of loss than items kept at home for most of the time.”
Your risk profile, along with budget considerations, also affects whether you choose a policy that has a higher monthly premium and lower excess, or a higher excess with a lower monthly premium.
“If your camera is critical for you to be able to fulfil your obligations, you might go for a policy with a higher premium upfront, so that you don’t pay large amounts of money towards excess in case of loss,” he says.
Don’t stop talking
Communication with one’s insurer shouldn’t be a one-off affair, but rather an ongoing conversation, Noholoza explains, especially regarding potential depreciation and appreciation of the value of the insured assets.
“If you paid R100,000 for a vehicle, and let’s say it depreciates 10% a year, why would you want to keep paying 100% of the premium for 90% of the value? It is absolutely critical that at least once a year you look at the value of your car versus what you’re paying your insurer, and there are a number of websites where you can pay a small fee to get the current market value of your specific car.”
Conversely, if you buy a house and insure it as well as its contents for a certain value, it is important to keep in mind that fixed assets generally appreciate. Add to that any renovations that you might have done, and your house might be of much higher value than what you initially insured it for.
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“You almost want to make sure that every year, the value of that house has been noted by the insurance company and adjusted accordingly. If in 10 years’ time something happens and your house gets demolished, would you really want an insurer to pay you that value from 10 years ago, knowing that your house is worth more?” says Noholoza, adding that consumers should “rather overcommunicate than not communicate, especially with regards to what we call immovable assets: your house, your building structures, and even the contents.
“A lot of us, after a couple of years, might buy a better TV or a better PlayStation. Let your insurer know because your insurer will only work based on what you told them,” he adds.
Similarly, should you move or downgrade some equipment such as buying a cheaper computer or phone or perhaps other contents in the home, he emphasises the importance of updating your insurer: “Once a year your risk profile gets reviewed. If you’ve made changes that reduce the value of your insured items, you don’t want to be charged for something that you might no longer possess, or that might be a cheaper variant from what you had originally insured.”
The highs and lows: excess vs premiums
Ideally, you want a mix of both: to pay a reasonable monthly premium as well as a reasonable excess amount. What is reasonable differs depending on each person’s financial circumstances, explains Noholoza. Depending on your cash flow, you could decide that you can afford to pay a higher premium, knowing that in the case of damage or loss, the excess would be within budget, and vice versa.
However, he advises caution when it comes to policies that appear to have a low premium as well as a low excess payment. Says Noholoza: “A lot of consumers call a direct insurer, get a policy where they pay a very low excess, as well as a very low premium, and they think ‘fantastic!’, without reading the terms and conditions, only to find out when they claim that the terms and conditions exclude or preclude particular types of damage or incidents.”
If you are uncertain as to the terms and condition of various policies, it might be better to work through an insurance broker than to deal directly with insurance companies.
On this, he notes: “Say you have an accident, you call your broker and explain the situation. They then manage the entire admin process behind what needs to happen. We often overestimate what we know, so sometimes it might be best to hire an expert.”
Go for broker
Potential customers might understandably worry that going through a broker could result in additional fees on top of their monthly premiums and excess payments. Not so, according to insurance broker Craig Williams.
“Our fees are included in the premium. Say you’re already insured with one of the big five [local] insurance companies, and I as a broker then sign you up as a client – your premium will not be affected. The company will willingly pay me commission on that policy to service it for them, because they understand the value from both sides of having the broker servicing the policy,” says Williams.
As part of their job, he explains, they have a more complete view of the marketplace, and therefore negotiate with the insurance providers on behalf of the client. When it comes to understanding terms and conditions, Williams cautions that when potential customers are on the phone with call centre agents, there is also a risk of not fully comprehending and later recalling what was agreed upon.
“Dealing directly with an insurer might eliminate extra admin, in that you can close the deal over the phone, but you haven’t built trust on a personal level. You don’t get a transcript at the end of the call, but you should know that that will be called upon a few months down the line should you submit a claim,” says Williams.
For customers who dread the thought of having to pick up the phone and call their insurer to claim, the broker functions as a go-between. Says Williams: “The buck stops with us. The client contacts us and we report the claim on their behalf. The only time that the insurer and the client might deal directly is in cases when the insurance representatives have to come and inspect damage or loss.”
When it comes to choosing a broker both Williams and Noholoza recommend doing due diligence by checking the Financial Sector Conduct Authority’s website.
“Depending on where you live, you can look for brokers in your region… and they’ll give you a list of registered accredited brokers, as well as their particular area of expertise.
“Direct insurers also abide by certain licensing or legal requirements, but because they have no obligation to necessarily take you through every single aspect of that policy or the product offering, you might find yourself lacking in terms of understanding and therefore run into challenges at claim stage. If I was an everyday consumer who’s not an expert in this particular sector, I would honestly use the services of the Financial Sector Conduct Authority to find the services of an intermediary who’s going to help me along,” says Noholoza. DM/ML