Insurance policy errors - a timebomb - Business Works
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Insurance policy errors - a timebomb

Danny Cooper, MD, The Insurance Manager We provide an outsourced insurance management service to a wide range of clients who do not have the resources to employ their own team writes Danny Cooper, MD at the Insurance Manager. Our first 'survey' was put together in 2007 to help substantiate our complaints to certain brokers and insurers who, we felt, were not meeting reasonable delivery standards. This has since become an interesting annual measure of wider market standards and an independent assessment of the quality of customer service in one of the largest 'service' sectors.

Part of our role is the procurement of appropriate insurance from a very wide market spectrum. This produces contact and negotiation with, and documentation from, dozens of brokers and insurance companies and a unique vantage point to compare and contrast. Effectively, we are 'the client', but one that knows what they need, when, how soon and whether its correct.

who would know until the time came to make a claim?

Unless the insurance market is treating our clients any differently (if anything, our buying power suggests we should actually be receiving preferential treatment), then it is a fair assumption that what we experience year-on-year is a mirror of the service provided to clients across the board. This produced the realisation in our 2009 survey that 'Millions of insurance documents might be wrong'. Who would know until the time came to make a claim?

What we measure

We use two very simple comparative measures.

The first is a check on technical standards and risk knowledge, as well as the ability of the insurer and broker to produce a correct policy document. We simply keep a log of documents received and whether they are correct or not. We take the view that the document is right or wrong and, whilst we might let a spelling mistake go until next time, we will reject any policy that differs from what we have negotiated and purchased, especially where extra conditions of cover or exclusions have been sneaked in.

The second is to determine the quality and efficiency of the service received. What percentage of the average working day relates to deadlines missed and promises broken and to correcting errors? This is measured in time spent on calls, letters and e-mails.

The story so far

Year % errors % day 'wasted'
2007* 64% n/a
2008* 66% n/a
2009 37% 48%
2010 34% 51%
2011 24% 46%
2012 38% 41%
2013 23% 32%
* In the early years our figures were only based on a two week sample which might account for the apparent massive improvement in subsequent years. The efficiency part of the survey was not introduced until 2009


We lose the equivalent of 1.5 days a week to insurance industry inefficiency
  • The percentage improvement is pleasing and due to:
    1. a true improvement in standards;
    2. the cumulative effect of efforts in previous years; or
    3. influence of new brokers introduced to the procurement process.
    Whatever the case, roughly a quarter of policies is still being issued incorrectly.
  • Extrapolation of our sample points to millions of policies still being issued incorrectly to businesses each year - but not so many millions as previously.
  • Private insurances, such as motor and house, represent a small percentage of our work, but are more likely to be issued correctly than large commercial contracts. One sector where the simplification of cover and single input of information has been able to contribute to improved efficiency.
  • We lose the equivalent of 1.5 days a week to insurance industry inefficiency. We have no way of measuring the cost to the industry as a whole, or the cost to individual clients of this inefficiency.
  • These are the best results for the insurance industry since the survey started, but is this another false dawn?
  • Brokers do not seem over concerned at our findings. Most acknowledge the odd error, but assume it must be the others pushing the percentages up.

Factors contributing to deteriorating standards

  • Cost cutting places extra pressure on remaining staff who have other priorities
  • Lack of training and knowledge - how are mistakes to be spotted if the person charged with checking a document has insufficient knowledge to do so?
  • Broker focus on sales rather than servicing
  • "The computer says" - so it must be correct
  • Inadequate management direction
  • Compliance systems create uniformity rather than questions
  • A reluctance to take responsibility

What does this all mean to a business?

insurance companies are increasingly using 'the policy says' defence

Many business people wont be too bothered how long it takes for an insurance policy to arrive. Its only going to go in a drawer anyway and the brokers letter says hes checked it, so whats the problem?

Insurance companies are increasingly using 'the policy says' defence and will not accept any blame if the policy was issued incorrectly. Its also unlikely that the broker will admit to any culpability - he did say to check it in case hed missed something. Even if were only a little bit right, theres a massive time bomb sitting in the desks of the countrys Financial Directors.

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