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Published in Livemint. Written by Kapil Mehta
Last week I walked past an office that displayed a large, attractive poster, advocating “Say No to Single-Use Plastic”, printed on single-use plastic. Such thoughtlessness is pervasive but if it takes place in insurance, the impact can be significant. That’s because insurance is not a tangible product but a promise to pay claims in the future, sometimes dozens of years later. If the insurance product is not crystal clear, it can result in you accepting terms, conditions and warranties without realizing their possible impact on the claims.
One reason for apparent thoughtlessness is ambiguous language. My own health insurance, a very good purchase, says on the opening page, “This policy certificate is to be read with the policy wordings, as one contract or any word or expression to which a specific meaning has been attached in any part of this policy shall bear the same meaning wherever it may appear.” Why doesn’t the insurer just say, “The definitions in the policy contract apply to the policy certificate also?” Another health cover I have, from a different insurer, warns, “If a claim is in any way found to be fraudulent, or if any false statement, or declaration is made or used in support of such a claim, or if any fraudulent means or devices are used by the Insured Person or anyone acting on behalf of the Insured Person or any false or incorrect Disclosure to Information Norms to obtain any benefit under this Policy, then We may reserve the right to re-underwrite or cancel the Policy and all claims being processed shall be forfeited for all Insured Persons and all sums paid under this Policy shall be repaid to Us by You who shall be jointly liable for such repayment.” This is intimidating because it feels as if the insurer’s entire legal department will hunt me down were I to twist the facts. But I would be equally frightened if the insurer had just said, “We can cancel your insurance and seek compensation if you lie.”
We sometimes generate content mechanically. I, too, am guilty of this as our content writers churn out material to improve our website’s presence in online searches. An insurer sent a letter to a friend cancelling her health insurance for non-disclosure of material information. Sections of the Insurance Act that she had violated were quoted but then she was cheerfully assured of the insurer’s very best services and a healthy life. In October each year, before my grandfather’s birthday, insurers call my mother to wish and recommend that he buy term insurance immediately to avoid a price increase after his birthday. Were he to be alive today, my grandfather would be 107 years old, so my mother just tells the tele-marketeers that he is not taking calls anymore.
Technology can be a problem. Renewal notices come thick and fast before the renewal date with the disclaimer, “Ignore this letter if you have already paid your premium.” That’s because the insurer is unable to reconcile payments fast enough to stop future notices from going out. From a policyholder’s perspective, one worries that the payment has not been properly recorded by the insurer.
Too much information obfuscates. In traditional life insurance, two important considerations are the expected returns on maturity and surrender. This information needs to be calculated from the extensive data in illustrations. Similarly, in a home insurance, most do not understand the meaning of placing the insurance at market value. The phrase implies that the free market cost is insured but actually it is the book value after adjusting for depreciation and can be much less than the cost of repair or replacement.
Technology and products can help bring about mindfulness. Good use of technology can tailor responses to persons rather than spamming. A well-designed product will do away with reasons for likely claim rejection so that even if a buyer does not fully understand the insurance contract, the claims will get properly settled. Some examples of this are to always sell home insurance on reinstatement value basis, a current regulatory proposal, or the fact that in a term insurance, the only exclusion allowed is suicide in the first year. Similarly, health insurance plans have certain minimum standards such as life-long renewability that always make them good purchases.
Thoughtfulness can be learnt. A few years ago, I would not have noticed the use of single-use-plastic in a poster. It took just one gritty Swedish teenager crisscrossing the Atlantic in a boat to make me more mindful.