IN Q3 of last year, the CBI shone a light on underinsurance in the Irish home insurance market and the issue has been the subject of much media attention since, some of it quite negative for the insurance industry. The problem – because undoubtedly it is a problem – has been increasing in magnitude over the last five years, from an average of 6.5% of paid claims being under-insured in 2017, up to 16.5% in 2021.
A survey by Aviva that was much quoted across media in April 2023 suggested that 16% of claims currently were underinsured. This is concerning, as for most consumers, their home is their most expensive purchase and most families only asset of significant value. Moreover, anyone with a mortgage secured on their property has an obligation to their lender to ensure that the property is fully insured.
The CBI’s “Dear CEO” letter sent as a result of the thematic review was not uniformly bad news, in that it noted that some firms had positive practices in place, including internal reviews, customer awareness campaigns, staff training and the development of on-line tools to assist staff and consumers.
However, in general, the approach taken by firms in the market lacked consumer focus in two important areas, namely, the clarity, consistency and timeliness of communications with consumers regarding the risk of not having sufficient home insurance cover and the effectiveness of firms’ consumer risk management tools and frameworks in identifying and assessing consumer risks.
Standards varied across the market when it came to highlighting key information such as the concept of under-insurance and the need to have the correct sums insured as well as the steps taken to identify and mitigate consumer risk.
Does channel make a difference?
Whilst the Dear CEO letter was directed to Insurance Firms, Intermediaries cannot conclude that the issue of under-insurance is not a concern for them and their customers, or that this is wholly a matter for Insurance Firms.
According to the CBI’s October 2022 Intermediary Times, under-insured claims existed irrespective of the sales channels used by the insurance firms in scope. In other words, customers who purchased their policy through the Insurance Broker channel also had claims reduced due to under-insurance.
According to the CBI’s 2020-2021 review of differential pricing in the home and motor insurance markets, 62% of the Irish home insurance market is intermediated.
The size of the Insurance Broker share of the market and the recent significant increases in the cost of construction mean that potentially a lot of Insurance Broker customers are impacted by under-insurance and the risk they will not recover the full amount of a claim.
What does the CBI expect Insurance Brokers do?
The CBI has stated that it expects the risk to customers from under-insurance to be identified, and acted upon proactively by retail intermediaries selling home insurance.
The CBI has stated that it expects Insurance Brokers to consider the findings and expectations and to take action, as appropriate, to ensure customers’ best interests are protected and the potential risks of underinsurance are effectively mitigated and communicated to customers.
All information provided is to be clear, accurate, up to date and written in plain English, with key information brought to the attention of the consumer.
Where can Insurance Brokers make a difference?
It is clear that ensuring a consumer has the right level of cover to mitigate the risk to which they are exposed and clearly communicating that to the consumer is not as straightforward as some might think. In fact, it can be time-consuming and complicated.
And yet providing peace of mind by explaining coverage in plain English, using expert knowledge and giving impartial advice, is what Insurance Brokers do best, along with providing essential advice in the event that the consumer has to make a claim on the policy.
Brokers Ireland considers that Insurance Brokers can view this under-insurance challenge as an opportunity to communicate with clients, and to demonstrate the value of the Insurance Broker channel and its unique offering.