It is said that the way in which insurance claims are handled says a lot about the values of the insurer involved. References to integrity and fairness are weighed up and judged by insurance claimants according to how they feel their claim has been dealt with. It is after all where the truths of the promises in the insurance policy come to be tested. And that has not been lost on regulators, who besiege the insurance sector with reviews, and investigations where private investigators, regulators’ reviews into claims, Insurance Ombudsman Office and, in some cases, the Fair Competition Commission’s investigation into certain claims practices come to the fore.
The three – claims, information and ethics are issues of fundamental importance – insurers who conduct internal reviews into their claim’s operations will need to consider these issues, or likely, risk having the regulator challenge their underrating and professionalism.
As it relates to information asymmetry – we all know that insurance can be a complex product. Well, such a statement may be overrated, because in a business-to-business context, this complexity shouldn’t be an issue, for with the involvement of brokers, both sides have relatively equal levels of insurance knowledge. In personal insurance, yes — the complexity can create some difficulties. The key difficulty being an asymmetry of information between the insured and the policyholder, with the former knowing a lot about the insurance product and the latter knowing very little.
Again, in itself, there’s nothing unusual about asymmetries of information like this, for we engage with people with specialist knowledge on an almost daily basis. However, the nature of the insurance contract, as a promise of financial reimbursement conditional on the circumstances of a loss, makes information asymmetry an important ethical issue. And it is an ethical issue that the insurer can be particularly exposed to. Let’s put it in some context — short of every policyholder holding an insurance qualification, information asymmetry will always be there. So, the ethics of information asymmetry lie not in how you avoid it, but in appreciating where it’s important and how you then handle it.
One of the reasons for professions evolving and becoming part of today’s business landscape is in recognition of information asymmetry (think of lawyers, accountants, engineers, doctors, etc). It’s the duty of every professional, of whatever form, to manage information asymmetry with fairness and skill. How well they have done this over the years has gone a long way towards building the reputation of each profession. An insurer that sees itself as part of a profession, offering a professional service to its customers, needs to put information asymmetry, and all its influences and consequences, at the heart of its relationship with the policyholder.
If you’re a member of a certain profession, or work for a company that is regulated, then this is an issue that should be central to your professionalism. Policyholders sometimes accuse insurers of exploiting their lack of knowledge about insurance and in some cases, they may have a point. However, it is often the case that they feel exploited, rather than actually being exploited. Those feelings of exploitation are symptoms of that imbalance of knowledge and the sense of powerlessness.
So, dealing positively and proactively with circumstances in which the sense of powerlessness can arise will go a long way to earning the trust of the public. With claims often being a complex mix of money, emotion and uncertainty, claims departments within insurance firms are ideally placed to take this sort of initiative.
Let’s look at some cases of how information asymmetry can influence the insurer and claimant relationship. Firstly, the policyholder may have read the policy, but they are unlikely to have really understood it. There’s nothing unusual in this – we all have situations where we may cast an eye over the information slip inside a box of medicine, but rarely read all of it, let alone understand it.
So, when insurers complain about insureds not understanding what they’ve bought, those insurers are in fact voicing a lack of understanding of their customers and of what their own role as professionals really means. Secondly, policyholders usually have little to no understanding of how the claims process itself works. This is compounded when insurers have created complex claims processing.
So, even if a policyholder has spent time reading the policy and made an effort to understand how the policy might deal with the claim, she then finds herself in the middle of a process that deflates her confidence and puts her on the defensive. Thirdly, the claimant may know many things about the loss they’ve suffered, but they may not fully appreciate what those things mean within the context of their claim. They’re not motor technicians, nor builders, for example. The insurer needs to proactively engage with the claimant about the information they need to assemble, what next steps need to be taken and who will be providing them with what service. Those insurers who approach this in a positive and supportive manner are much more likely to win the trust of the public, than those who leave the claimant to work it out for themselves.