Cedric Stephens | The nexus between premium and protection
QUESTION: I own a three-bedroom house. It is not insured. The estimated replacement value is $40 million. Insurance coverage was terminated about two years ago after I repaid the mortgage. I am now very worried. This is because of the damage that Hurricane Dorian caused in The Bahamas. Based on forecasts, the possibility of similar events occurring here during the current season does not seem remote. Would I have to wait for a period of six months for the coverage to start if I were lucky enough to get an insurer to agree to provide the protection that I need?
INSURANCE HELPLINE: Life and non-life insurance companies, brokers, and agents are doing a poor job of communicating to the public about the services that they sell. Last week’s article about non-compliance of four randomly selected general insurance providers with two parts of the regulator’s rules about how prospective buyers should be treated pre-contract signing offered details of how some of them generally handle these interactions.
Your question provides another example. Do you recall seeing or hearing about any promotions persuading consumers to buy hurricane insurance before or after June? Meanwhile, retailers of fans, air-conditioning systems, and motor vehicles are flooding the media with ads that are enticing consumers to spend money.
Most non-life insurance contracts start immediately the premiums have been paid. In rare cases, a few insurers will agree to assume coverage even after the insured event has occurred. In a catastrophe-prone country like the one we live in, shouldn’t everybody know that unlike many health insurance contracts that exclude pre-existing conditions, there is no waiting period before hurricane insurance kicks in?
Insurance is just another commodity. Even though it is not tangible like a fan, air conditioner, or car, it is still subject to the laws of economics. It is imperfect, not sexy or tasty like fast food, but offers distinct benefits when needed.
Thousands of the folks who lost family members, plus their houses and other property in Abaco and who do not have access to savings and insurance will be forced to rely on the generosity of family members, strangers, and, possibility, their government, in order to begin the long and difficult process of recovery from Dorian.
The government’s national financial-inclusion strategy, when stripped of nice-sounding words, is simple. It means in practical terms, that the state does not have the money to help all citizens to recover when disasters happen. Citizens should use private financial markets, banks, credit unions, insurance companies, and other institutions before nasty things happen to find answers. Government’s job is governing. they are not in the financial services business.
I tested my theory about the lack of effectiveness of insurers’ communication functions with two friends. Both are over 50 years old, are car and house owners, and are aware that I write about risks and insurance.
However, none of them knew that local insurers did not impose a compulsory waiting period before insurance coverage started. Both appeared dubious when I said that if coverage was arranged today and the insured event occurred hours later that same day, the insurer would be contractually obliged to pay the claim.
Ignorance about this basic principle of non-life insurance highlights the importance of the insurance regulator adopting a zero-tolerance approach when providers do not comply with the pre-sale market conduct disclosure rules. Non-compliance gives the industry a bad name and is inconsistent with the goals of more financial inclusion.
Given the experiences with my two friends, I decided to contact Joseph R. Evering, assistant underwriting manager, Guardian General Insurance Jamaica Limited. This company is a subsidiary of Guardian Group, one of the leading regional insurance companies whose ultimate parent is NCB Financial Group.
Mr Evering wrote the following in response to my enquiry:
“Contrary to the view held by your friends, once a homeowner’s policy is incepted in Jamaica, coverage is immediate. However, waiting periods for flood insurance are commonplace in some jurisdictions in the United States of America.
“The proximity of a storm or hurricane affects the availability. All insurers have a ‘cut off’ protocol if there is an impending hurricane. If the authorities declare that the country is under a Hurricane Watch, insurers will cease writing new policies and prohibit the reinstatements of previously lapsed policies. When the Hurricane Watch is lifted by the authorities, it will be business as usual.
“Insurance provides protection against fortuitous events. When a Hurricane Watch is declared, it is very likely that a storm or hurricane will hit the island.”
I could not have said it any better.
- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: firstname.lastname@example.org