Sneaky insurance companies

[mjr]

I no longer have any idea whether you're talking about actual cost (actual historical claims minus premiums paid) or expected cost (based on a statistical calculation of propensity to claim), and it seems as though you're flipping between one definition and the other to suit your argument

I've been quite clear that I'm talking about cost, which you seem to call "actual cost" above. Others have introduced expectations and probabilities and so on and muddied the waters.

The fact is that insurers aim to make a small profit out of many to offset the larger losses they make on a few - that's how insurance works. If they underestimate and make a larger profit, that's not going to be given back to the many as discounts next period because the scheme might make a loss - instead, it should be extracted from the company by the owners as fast as rules allow (in line with the law of maximising shareholder value), so if any loss is bigger than expected, they can let the company collapse with the minimum required expense.

 

[mjr]

You have misunderstood. Insurers do deliberately sell many policies below expected cost, for various reasons.

I've not misunderstood. I'm talking about cost while you're talking about expected cost. While expected cost matters to the sellers, only my individual policy matters to me.

The concept of selling an individual policy at a profit or a loss is nonsense because the majority of the actual (rather than expected) costs aren't known until the claims happen.

Exactly, so the concept of a discount is also nonsense. You pay whatever they can get away with charging you and it has only a very weak link to how much you will cost them. If people keep rewarding insurers for bumping up the premium and adding unrequested optional extras by staying with them, they'll keep doing it. Switch!

Dave Gorman "ordered a pizza online. It added warm cookie squares to the cart for 99p as part of my order. None of us would accept the staff lobbing a Toblerone into the trolley in a supermarket… It’s not OK." (source)

 

[mjr]

Apply the filters "4G, not based on the Three network, huge amounts of data, no prohibition of tethering" and the options start to look a bit thinner on the ground. I won't even bother to add "ipv6, no CGNAT" because I think that would zero it out completely

Ah yes, that might thin them out to a slower rate of startup than your contract renewals! Like TV with the adverts described in another thread, it's a oligopoly covered by the dysfunctional regulator "Ofcom".

 

[srw]

Does it also include any wording making it clear that people are buying an entire new policy every year? I'm sure many people think of the loyalty discounts they get for continuing membership of things like the AA and the RAC, and assume that insurance policies work the same way.

"You have been with us for a number of years. You may be able to get the insurance cover you want at a better price if you shop around." That's a mandatory wording after four years.

I think people in general are rather less naive than you do, and know very well that there is no such thing as a loyalty discount in insurance. Including, incidentally, motor breakdown insurance - yes, the AA and the RAC are insurance schemes and gave up loyalty discounts some years ago...

 

[srw]

I've been quite clear that I'm talking about cost, which you seem to call "actual cost" above. Others have introduced expectations and probabilities and so on and muddied the waters.

That's because the economics of insurance only makes sense when you talk about the aggregate.

If you have a motor policy, you will "lose" money most years when you don't claim. Each year you claim you will "gain" money. If you're ever careless enough as a driver to cause someone a catastrophic injury, get sued and have to pay them several million pounds you will "gain" more money from insurance than you will ever receive as income in your lifetime. Which is why mandatory insurance for the drivers of dangerous vehicles is a good thing.

 

[srw]

I think if you were to end membership of the AA or RAC, and then rejoin, you might find it cost a lot more. The 'discount' is in not passing on rises in membership fees. I don't think people are necessarily naïve as it happens, but I do think a lot of people, particularly elderly people, think their policy just continues year after year and that they are likely to be rewarded for loyalty, rather than what is actually the case. The insurance industry could state the truth in so many words, but why would they when it's to their advantage not to? But then I would expect you to loyally defend the industry you work for, so I'm not at all surprised by your responses on here.

On motor breakdown (and note the dates)....
https://www.theguardian.com/money/2009/may/30/aa-breakdown-recovery
https://www.theguardian.com/money/2013/jan/12/aa-poor-reward-loyal-customers

I'm not, as it happens, loyally defending the industry I work for - although I do think it's a societal good and (thanks substantially to regulation) consider more ethical than many complex consumer industries it's a very long way from perfect. As it happens I'm wrestling my way through two rather imperfectly handled claims at the moment...

 

[colly]

Every time I pay insurance of any sort I hope I'm wasting my money.

Even so I do like to see that I'm not paying over the odds.

There's no doubt that some companies are devious in the extreme when it comes to terms and conditions, and yes of course it's up to the customer to be fully aware of the T&C but a small insignificant phrase tucked away in the midst of page 472 can have big consequenses.

 

[Dan B]

I've not misunderstood. I'm talking about cost while you're talking about expected cost. While expected cost matters to the sellers, only my individual policy matters to me.

Exactly, so the concept of a discount is also nonsense. You pay whatever they can get away with charging you and it has only a very weak link to how much you will cost them.

(1) if we knew in advance what some individual policy is going to cost, it would render the entire concept of insurance impossible. If your house definitely isn't going to burn down, why buy insurance? If your house definitely is going to burn down, why would anyone sell you insurance? Can we agree that this would be a bad state of affairs for society, if the unlucky are left homeless through no fault of their own? It's hardly the fault of insurance companies that they have only a weak idea of what your policy will cost them, it's the very basis that enables them to provide insurance.

(Perhaps you are assuming that the State would take over this role, which changes the picture more than slightly. But you haven't mentioned that)

(2) This doesn't make the concept of a discount nonsense, at least to me. The insurer has a reasonably good idea of the total cost of all likely claims and an extremely good idea of the total income from all the policies they've sold: they can divide one by the other to get a "fair" price for each policy - what a hypothetical non-profit entity such as a co-op or a state would have to charge if they were providing the same service that a commercial insurer currently provides. I think it is entirely reasonable to discuss discounts/surcharges/renewal-time-gouges using that "fair" price as a baseline

(3) I am not defending sneaky bundling or policy "upgrades"

 

[Dan B]

But insurance as 'a societal good'? I'd take a hell of a lot of convincing.

The NHS is a societal good, no? We all pay in, only some of us benefit directly, nobody other than the liberteenagers complains that they're not getting value for money and should not be expected to subsidise the chronically ill

 

[Electric_Andy]

I've had this from nearly every Insurer for the past 3 or 4 years. Bike, home, car. It's automatic opt-in renewal these days. yes you just phone up and say price is too high, I'm leaving, and if they can't match a cheap quote you've had, then leave.

 

[Haitch]

Because some insurance is compulsory.

If the state tells people they have to take out insurance, it should also tell insurance companies what cover they must provide and how much it must cost.

 

[srw]

I don't think that's a valid comparison. I have suggested in the past that insurance should be state-owned rather than paying dividends to shareholders, but the idea doesn't go down well with people who make good money out of the insurance industry.

State-owned insurance provision is a perfectly valid model. As is mutual insurance. But it's still insurance. Users and governments the world over have spent the last hundred years and more trying to find the best balance between consumer protection, not overburdening general taxation, getting those who cause loss to pay for it and charging individuals a fair premium. In most countries the current model is some sort of socialised insurance of health, unemployment and old age, often with private top-ups, and commercial insurance of most other risks. Broadly it works OK for most people.

Because some insurance is compulsory.

It's compulsory precisely because it's a societal good that innocent cyclists and innocent employees should be protected financially against the mistakes and failings of others. I am in general supportive of state provision where it makes sense, but my view is that a state-provided model for compulsory motor insurance (bits of Australia have it) would be no more effective in providing the outcomes society wants than the current model. Yes, I am not totally disinterested, but I'm self-aware enough to know that and to try and take my own interests into account in what I think.

And, as @Dan B points out, some bits of insurance are non-compulsory but still a societal good. It is a societal good that the bike shop which services your bikes should be able to trade without worrying that their entire livelihood will vanish if their shop burns down.

 

[srw]

If the state tells people they have to take out insurance, it should also tell insurance companies what cover they must provide and how much it must cost.

It does tell them what cover they must provide. It doesn't tell them how much it must cost because, on balance, letting the market decide is a better deal for customers.

 

[srw]

Only two types (if we exclude national insurance): motor and employer's liability. Two out of hundreds of types of insurance offered.

Nationalisation seems somewhat disproportionate.

Obligatory pedantry: there are ways of getting out of motor insurance. And the operators of nuclear power plants need insurance or a lot of money (though not enough for the full clean-up costs). And there are some circumstances (operating a horse-riding establishment, I believe) in which the granting of a licence is contingent on having third-party liability insurance, which makes if de facto mandatory.

 

[swee'pea99]

Update - and this time I feel a name & shame is called for - having cancelled my auto-renew, as per my instructions, esure this morning sent me an email saying, oh yes, it's time for your new policy. Don't worry, we'll auto-renew for you, so you don't have to worry about a thing. What's more, the email it came from was a 'no-reply' address, so I had no option but to ring them up and listen to their interminable recorded messages (including one that said they would send me their marketing crap *unless* I told the operator I didn't want it - could have sworn the rule was that you had to opt *in* these days?) and cancel, again. Grrrrr.