I invited you to send me your questions (please keep on sending them) and received this question:
When will the insurer say I claim too often?
A Relevant Question
This may seem like a strange question, but it is a very relevant question. One of the worst things that can happen is that an insurer adds special conditions on your policy – for instance a special, extra excess. Or even worse, cancel your policy. It is something that we try to avoid at all costs.
When completing your proposal for insurance, there are these two questions:
- Have you had any claims or losses (even if you have not claimed for it) in the last three years. That is a three year history.
- Have any insurer ever cancelled a policy or agreed to continue a policy on special terms? This is a lifetime of history that you carry with you!
The second question is very important, you do not want to get into the situation where you have to explain question #2. It is a question that forces you to disclose a very long history. A few years ago I went through a bad claims patch – claiming a cellphone when my wife slipped and fell in the water, a few days later I was surprised by a “mini-tsunami” that almost dropped a tree on me and my camera was submerged in the sea. And then, too add insult to injury, my house was burglared. Fortunately no special conditions were raised, but that could have happened. That is what we must try to prevent at all costs.
And that is why it is very relevant to ask when do I claim too often. I will try to explain with some examples below. First let’s look at a few principles:
Remember this clause in the policy wording:
|Duty of care
You must take all reasonable precautions and all reasonable care to prevent or minimise loss, damage, death, injury or liability.
I think the question goes something like this: “I pay my insurance premiums every month to cover myself against mishaps. Why will I be penalized if I claim too often?”
Is there an answer to the question, something like if you claim x number of times, it is too much? No, it is impossible to answer like this.
The Insurer is in Business
Let us try to look from the insurer’s point of view. Remember insurance is the risk of one spread over the shoulders of many. That implies that we all carry and contribute to the loss of the one. Insurers are in business and they need to make a profit. In general, I think as long as your loss ratio is below 60%, you are still fine.
Loss ratio is the value of claims to premiums paid. Obviously one big claim, like my burglary is very bad for your loss ratio, but at the same time, if I had a good record, the insurance is not going to cancel my policy or add special conditions for one incident.
Perhaps you want to say that a fire can escalate your loss ration way beyond 60%. That is true, but normally people don’t have fires annually ( we are not talking braai fires here!)
Examples – What do YOU Think?
I will try to use a few examples and then you decide what you would do if you were the insurer:
- The client has small parking lot accidents every few months – typically these own-
damage-claims are about R15 000 each. It is the so-called fender benders. The poles that jump at you (and those low, invisible poles and plant holders in parking lots are so annoying). After the 3rd claim in a 12 month period, what would you do if you were the insurer? What you just keep on paying?
- Water pipes in a house is another one of these niggling claims. If a client has water damage because of bursting pipe claims regularly, at what point will you say enough is enough? In the first example of the parking lot accidents, we can say there is negligence, but not with waterpipes. Waterpipes do not burst due to client negligence, to the best of my knowledge. Perhaps the builder used sub-standard pipes, but then the question is should the insurer (and every other insured) pay for the shortcuts a builder took? Perhaps the pipes come from a bad batch? This is a difficult one for me. I want to be on the client’s side, but I also understand that the insurer cannot pick up the tab for bad quality. I would love to know what you what do in a case like this.
- The cherry on top, is All Risk Items. How many cell phones would you replace before
you draw a line? How about three in a 12-month period? Four? If it becomes a regular occurrence, the insurer will either add a hefty additional excess to the policy or cancel the insurance on cellphones.
The All Risk Section is the one section of a policy where we often get people claiming too regularly. Although I think my two claims with the cellphone and the camera were not negligent (my wife slipped while trying to take a photo and if somebody did not shout to warn me, I might indeed have been trapped under a big tree floating in the sea) it still looks suspicious! Too many people use the All Risk Section of a policy to upgrade items like cellphones, cameras or to get new glasses!
If It was Your Child?
Perhaps we can look at the question like this. If you are a parent, how many times will you be OK with your child losing his shoes or clothes before you start taking action? Once is an accident. The second time there might be some extenuating circumstances. By the third time I will surely take preventative action.
When my eldest daughter was in Pre-Primary, she very regularly left her physical training clothes at home. Then the school phoned and I would take it for her. Until I explained to her that we all forget, but I do not have somebody who will bring my stuff for my. I have to spend time and money to rectify my mistake. Therefore, if she forgets again, she will have to pay me from her pocket money. It happened once more, I deducted a small amount from her pocket money, and that was the end.
Perhaps that is how the insurer will look at the problem?
And the Truth?
The truth is, after all this, I cannot tell you when you claim too much or too often. If you are a client, I will warn you when I think you could run into problems. The best option is be careful and put yourself in the insurer’s position.
“Insurer your goods; live as if you have no insurance” is a sure way to keep premiums low and have a good insurance experience.
What do you think? Please leave your thoughts and questions in the comments below.