Opinion – It’s broken but no one knows how to fix it
A few months ago, one of the guys in our office was involved in a car accident. Actually, he wasn’t even in the car at the time; it was parked up and an elderly lady drove into the back of it. She honestly, though foolishly as it turns out, admitted full responsibility. You would think that this would be straightforward to sort out; the insurance company would arrange for our guy to have his car repaired at no cost and minimal inconvenience to himself. The reality was a saga that went on for months.
The first repairer, presumably selected by his insurance company because of the size of the backhander they were prepared to pay to secure the work, expected him to take the car to their garage (30 miles away) to assess the damage, take it away again, then bring it back a month later so they could carry out the repairs. He complained, so the insurance company assigned another repairer who then kept his car for three weeks while they repaired the scratch on the bumper. In between times he was bombarded with calls from personal injury solicitors, eager to process his claim for whiplash, who were not even slightly deterred by the fact that he hadn’t even been in the car when the accident happened.
I, too, have been winding through the labyrinthine passageways of a home insurance claim after my house flooded. I reported the claim as soon as it happened and was slightly puzzled to be given two phone numbers, one for a company who would come in and clean up the mess, another for the loss adjuster who would manage the claim. The cleaning company arrived, took some photos and went away again. It took three weeks and a dozen phone calls to get them back. This time, they took all my furniture away, but still didn’t clean anything. Meanwhile, the loss adjuster took a week to make her first (and last) visit, then another two weeks to submit her report to the insurance company. She also appointed a surveyor who, five weeks after the event, has yet to produce a schedule of works to repair the damage to my house. Why is it that insurance companies are so good at taking money off us, yet so rubbish at sorting out claims?
The truth is that insurance companies do not make their profits from the difference between the value of the premiums they collect and the claims they pay out. Many people never make a claim against their policy in its lifetime. Those that do probably make a claim every 5 years, so the insurance companies have a huge pot of cash set aside, waiting to be paid out against claims. They invest this pot of cash and make their profits out of the returns on that investment. Of course, returns on investment have been pretty poor since the financial crash and so they have had to resort to taking “commissions” from personal injury solicitors and car repairers, not to mention hiking premiums, particularly for car insurance.
Investing vast sums of money and playing the markets is sexy, exciting and usually very lucrative. Sorting out insurance claims is unpleasant, full of hassle, time consuming and like watching money pour down the drain. So the insurance companies outsource all the inconvenient nitty gritty of handling claims. In the case of my flood claim, they outsourced it to a loss adjuster who takes a percentage of the value of the claim as their fee. The loss adjuster appoints a surveyor who will take a percentage of the cost of repairs as their fee. The surveyor appoints a builder who pays a “finder’s fee” for securing the work. All this greatly increases the cost of the claim, but the insurance company doesn’t care because they’ll just add it to everyone’s premium.
That is the system. You could argue that it’s broken, but no one has the time or the inclination to fix it.
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