FAQ: General Insurance
Questions
- What do the following terms mean?
- What’s the point of insurance?
- Can you explain about what types of insurance are compulsory?
- Are Woman Better Drivers?
- Why do premiums rise?
Answers
What do the following terms mean?
Glossary of common terms;
Asset
An item of economic value owned by you or your company.
Claim
A notification to the insurer that a covered peril has occurred and compensation for loss or damage is required.
Claims history
Your history of insurance claims.
Excess
The first part of every claim that you have to pay.
Insurer/Insurance Provider
The Company that provides the cover and will pay you for any claims.
Insurance Broker
An insurance professional able to provide independent advice on a wide rang of insurance matters.
Liability cover
Can include employers, personal and product liability. Refers to your legal liability to pay the compensation and costs awarded against you in respect of loss or damage sustained by a third party.
Loss Adjuster
An expert in processing claims from start to finish. A loss adjuster will be appointed by the Insurance company to negotiate a settlement, within the terms of the policy, which is fair to both you and the insurance company.
Premium
The amount you pay to receive cover under the terms of your policy.
Inception Date
The date on a policy for which cover begins. Any claims made before this date will not be honoured.
What’s the point of insurance?
The aim of insurance is to compensate you following a loss so that you are as well off – but no better off – than you were before the loss occurred.
An insurance policy is a contract and your rights as the holder of the policy will depend entirely on what is written in the contract and on any endorsements which may be added to it.
Many people are chronically under-insured. For example, the average living room alone actually contains around £5,000-worth of property!
Can you explain about what types of insurance are compulsory?
There are only two types of insurance which are compulsory: motor insurance and employers’ liability insurance.
Everyone who owns and drives a car on the public road must, by law, have at least third party insurance cover. This covers your liability for injuries to other people, their property, and their cars, caused by the use of your car while it is on a public road.
In reality most of us opt for “third party, fire & theft” policies, which cover third party risk, fire damage and the theft of our car, or “fully comprehensive” policies which cover accidental damage to our own vehicle as well.
If you run a business you are legally required to have insurance to cover you if one of your employees is injured or ill as a result of working for you.
The law also requires that you exhibit a certificate of employers’ liability insurance at each place of work. However, if all you are doing is employing a home help or cleaner you do not need this kind of insurance. For your peace of mind, it may be worth checking that your house contents policy covers you for any kind of accident they may have while working for you.
Public liability insurance is generally voluntary. However some businesses, eg horse riding establishments, are required by law to have public liability cover.
If you run a business that involves the use of certain types of power driven lifting equipment you are required by law to have the equipment inspected at specified intervals.
There are no other legally required insurance policies but if you have a mortgage your lender will almost certainly require you to have house buildings insurance to cover your home and a life insurance policy to cover the mortgage in the event of your death.
Other Insurance
You should insure your belongings. House contents insurance for clothes, books, furniture, carpets, etc. The total contents of the average home are worth around £25,000! You should remember to make allowance for ‘wear and tear’ on clothing and household linen.
More and more people are looking to private healthcare insurance as a way of getting round NHS waiting lists and you may wish to consider permanent health insurance (PHI) to cover illness or disability which would prevent you from working.
If you have a family pet you must decide whether you can afford vets bills or whether you should insure against them.
If you are going on holiday – particularly abroad – you should take out holiday insurance.
Most travel insurance is sold by travel agents but they may charge between two and three times as much as other insurers for cover that is often not as comprehensive.
If you are a frequent international traveller, making two trips a year or more you will probably be better off arranging an annual travel insurance contract rather than cover for each journey.Check the cover, some annual contracts will not insure you for winter sports. You should also check to see what cover you have already.
Credit card holders paying for holidays or air tickets with their plastic, for instance, often get free insurance. Standard cards’ protection may be limited but many gold cards provide comprehensive travel insurance.
If your household insurance policy is arranged on an “all-risks” basis, it means your possessions are also insured outside the home.
Are Woman Better Drivers?
We all know there is a stereotype of women drivers but what is the truth behind that stereotype?
The answer is that statistically speaking women are better drivers. The facts come from the collection of claims data over decades by car insurance companies.
Women, generally speaking, have the same number of accidents as men, but it’s the seriousness of the accident that is very different between the sexes.
Typically, an insurance company has to pay out more to fix a car when a man has had an accident as the car has to be extensively repaired.
Women’s accidents tend to cost less to repair because their accidents are often the result of minor bumps around town, or knocks when parking.
Women have a different pattern of driving to men. They drive shorter distances, have lower mileage and tend to drive more slowly. Men are convicted for 92% of driving offences and 98% of all Convictions for dangerous driving.
Given these ways in which the sexes drive differently and the actual claims experience of insurance companies, you can see why an insurance company will decide to generalise that women drivers are ’safer’ drivers.
The difference between the sexes is at its height in the late teens and twenties. After we turn 30 things tend to even out and men over 75 are often regarded as the safer risk. Things could well change though.
A survey by the AA last year showed that 54% of women admitted to aggressive driving compared to 64% of men. Also, many women are now driving longer distances and at higher speeds. But until the statistical evidence shows that there has been a swing, insurance companies will continue to regard woman as the better drivers.
Why do premiums rise?
For insurance companies 1993 and 1994 were vintage years in terms of underwriting profit. It was the first time since the end of the 1979 that premiums exceeded claims. Every bottom line profit in the intervening years had been contributed by investment income.
Since 1994, (the peak of profits for this decade,) every year since has seen a diminishing return and profits slid with the market to the bottom of the cycle. In the last 5 years insurance companies have made losses.
The reasons for a decline since the middle of the last decade are numerous, but one thing is obvious there are less players now available to brokers and less insurance companies vying for those all important market shares.
Competition for market share can be seen as one reason for the decline in insurance company premiums. The beating down of prices did no favours to insurance companies nor did it do anything for consumers, who now feel aggrieved at the sharp increase in premiums.
If you compare premiums to the unrealistic lows of the mid-nineties when each company was trying to outdo the other to gain all important market share, it is no wonder why consumers feel disgruntled.
The introduction of Direct writers into the market have also gone some way in affecting how business is conducted but ultimately how much it costs.
Some big names have now disappeared from the market, such as London & Edinburgh. The ultimate example is Commercial Union merging with General Accident, two of the larger insurance companies in the UK, to form CGU, which has now been consumed by the might of Norwich Union. Lloyds syndicates have also dropped, right now there are 14 – in two more years this number is likely to drop to less than 10.
What made all these Motor insurers so weak that the became take-over targets? The answer, quite simple, is the amount of money that has been lost over the last three years. Loss ratios for the last three years equate to paying £1.22 in claims for every pound taken in premium.
When an industry as big as the insurance industry loses money on this scale we are talking hundreds of millions of pounds.
Over the past 12 months there has been a 30% rise in the average cost of insurance. Newly introduced hospital charges, the trend of personal injury claims and courtesy cars have increased the average pay out insurers make for claims.
In the UK 8% of drivers are uninsured (Germany 1%) and the cost of the claims they make is still met by insurers. To exacerbate the situation, tax on insurance has increased to 5%. Premiums will slowly improve as the industry puts in measures to cut down the number of uninsured drivers but for the time being the only way is to keep shopping around for that deal.
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