Is it better to pay the mafia than an insurance company?

Katie Small, board director at insurance broker R K Harrison on what insurance companies need to do to win trust of customers

At a party a few weeks ago one of my friends offered the opinion that “you may as well pay the mafia than an insurance company, as you get better protection”. It turns out she’d been watching a lot of Inspector Montalbano on BBC4, and, although the show is about a police officer fighting the mob, she was impressed with the security offered by protection rackets.

Although that view was fuelled by copious amounts of Amaretto (it was in the run up to Christmas after all) and there are lots of obvious answers (ethics, the presence of a legal contract, the fact you won’t end up knee-capped or with your brake wires cut if you don’t pay your premiums), it does say a lot about the way people view their insurance. Many regard it as a grudge purchase, with an ‘us vs. the insurance company’ mentality and a general attitude of distrust as to whether your claim will get fully paid, or paid at all.

This is likely to be borne out of frustrating experiences with call centres, one-size-fits-all policies and a lack of communication, but if you work with a good broker you should see real benefits from their bespoke insurance with service based around deep expertise. Not only should this put the policyholder back in the same position as before a loss, but the broker’s expertise in product design should also actively help solve some of the complex problems that many of us face each day – not in a mafia ‘horse-head-in-the-bed-of-your-nemesis’ type way, but in a more constructive manner.

One example of this type of problem-solving is the young driver product that R K Harrison, of which I am a board director, offers, which encourages young people to drive more safely so they pay lower premiums. These are both huge issues for parents with teenagers  who are learning to drive and a glance at the statistics shows why.

AA stats show that 26% of road accidents involve at least one young driver aged 17-25, and one in five drivers has an accident in their first year of driving. This feeds through in to premiums, with the AA Q3 2012 British Insurance Premium Index finding that the average for a male aged 17-22 is above £3,000 while for a female it is £2,125.

In this environment it is easy to see why ‘fronting’ is tempting. That is where, despite the reverse being true, a parent will insure a car with themselves as the main driver and their child as a named driver. This is illegal, and if there is a claim any saving may prove a false economy as the insurer may not pay out if you have misrepresented who the main user of the car is. Even if there is no claim, it will also mean the young person doesn’t build up their no-claims bonus, so their experience will not be recognised with a lower premium if they want to insure themselves as a main driver at a later date. Finally, it does nothing to address the most pressing parental worry of them all: the teenager’s safety on the road. 

Using a combination of advanced driving lessons and telematics, our new product addresses these issues by providing the young people with the skills to drive more safely and an incentive to do so. As these measures should make their driving less risky, we should be able to charge the young driver a lower premium than the market rate. However if their driving performance, measured by a telematics box, falls outside the acceptable boundaries for three months then their policy is cancelled. No young person wants to lose their newly won independence by being unable to go out on the road, so that threat is a significant stick to back up the financial incentive carrot. It also allows the young person to build up their no-claims bonus, as while the policyholder is the parent (it comes as part of our high net worth household package), the young person is the main named driver.

That is just one example where a broker’s expertise can help solve a problem, but there are many other areas where their knowledge is beneficial. A broker should tailor your policy to your lifestyle, so not only do you not lose out financially by your loss, but you are minimally inconvenienced. For example, if you crash your Bugatti, not only do you want coverage to get it fixed by an approved repairer, but you want a courtesy car of a similar standard to the one you usually drive. If a flood damages a family heirloom, an insurer should have a network of restorers you can approach for repair work. A broker also has access to some good risk management advice, for example about security or flood prevention.

That seems to me a good reason why paying for insurance expertise is better than paying the mafia and, if your assets warrant it, it pays to get the best protection you can afford.

Katie Small is a board director at RK Harrison Insurance Services