The insurance industry needs reform

I was thinking about the subject of insurance today and decided there is a lot wrong with it.

For the most part we pay money to insurance companies and … that’s it. Nothing else ever happens, we just give them money. Insurance companies are exceptionally talented at taking money off us.

I will grant you a small percentage of people will actually make a claim, although I’ve noticed insurance companies aren’t as talented at paying out for claims as they are at taking money off us. However, if you’ve managed to avoid the numerous and often surprising exclusions in the policy, you may get money paid out for your claim and you may be glad you had the policy in the first place.

This brings me on to my first suggestion for insurance reform. The exclusions need to be much clearer and much more prominent. I’ve noticed they’re often printed in a font of the sort of size that would normally only trouble sub-atomic physicists.

So here’s what I’d do. I’d force insurance companies to have everything on one side of A4 in a font no smaller than 12 pt. In fact, let's call it 14 pt because I'm quite hard of hearing. That includes all the policy details and all the exclusions. I’d also force insurance companies to write such documents in English that is clear and concise and could easily be understood by, say, 80% of people.

I realise that, in reality, far more than 20% of people are card-carrying buffoons but I’m being generous here.

On one sheet of paper you have everything that governs the legal state of your insurance and, blithering idiots excepted, you can easily determine what you get for your money and what you will and will not be able to claim for in the event of a disaster.

It would be as clear as this:

Policy: Insurance against elephant trampling.

Cost: £20 per month.

One-off Admin Fee: £299.99

Exclusion 1: Policy unavailable in India or Africa.

Exclusion 2: Policy unavailable to zookeepers and safari park workers.

Exclusion 3: Only valid where the elephant has three legs and was playing a banjo at the time.

Incidentally, if you wish to sign up for that policy please send me an email.

I’d now like to go right back to the beginning and address the subject of premiums. As I said, most people just hand over money and receive nothing in return. The closest analogy I can think of is, well, robbery.

So what we need to introduce is the concept of retrospective insurance, where you only pay premiums for your insurance after the disaster has happened and the insurance company has paid out your claim.

This only sounds bizarre because we’re conditioned to insurance working the way it does. With the vast majority of things we purchase we receive something in return, either at the time or a short delivery span afterwards, and what we receive is generally more than a set of documents with a long list of exclusions on them.

Now, I may be mad but I understand there are certain realities here. Insurance is a business and businesses need to make money, so we’d need to work out a way to ensure the retrospective premiums sufficiently reward insurance companies. We’d also need to work out how long you’d have to pay your after-the-event premiums for. What you pay in total would still need to be significantly less than what you’d have paid to fix the damage. Otherwise what’s the point of insurance?

This has all the appearance of an insurmountable mathematical problem but the way I’d solve that is with devilish statistics. I couldn’t possibly divulge my plans here but you get where I’m going with this. It can’t be beyond the wit of man to work something out.

Either way, insurance needs reform. Take life insurance for example. Something’s horribly wrong when an industry can develop where in order to claim on the policy you actually have to be dead. Policy demands don’t get more onerous than that.