INSURANCE MADE SIMPLE

Transcription

1 INSURANCE MADE SIMPLE Working with the profession to simplify the language of insurance

2 UNDERSTANDING INSURANCE Insurance. We hear about it all the time. We buy cover to protect us against a wide range of things that could happen in our everyday lives and sometimes it s even a legal requirement. But what actually is insurance? And how does it work? This guide aims to answer these questions. What is insurance? Insurance covers a huge range of different areas and is a complex, multibillion-pound business. But at its heart it s always there for the same purpose. To protect people financially should something not go according to plan, and to help them in their time of need.

3 Why do we need it? Risk is all around us, it s a part of life, and it comes in many guises. Whether you re at home, at work, on the road, on holiday, or anywhere else, you re at risk of a loss. A loss could be your car getting damaged, or your house being burgled. Your cooking skills could set the kitchen on fire, or you might injure yourself abroad. The family breadwinner could fall ill or die. When something goes wrong, most people don t have the money to pay, for example, for major repairs, or to replace expensive personal possessions or settle costly medical bills. That s where insurance comes in. Put simply, insurance takes away financial uncertainty from you by shifting the consequences of a possible loss to someone else an insurance company.

4 Pooling risk What do insurers do? So how do insurers afford to insure you and your property at a fraction of its worth? Well, they pool risk. That is, they group together large numbers of people who all face a similar risk, for example a house fire, then collect a small amount of money from all of them through premiums. Then if one of those people who has paid in needs to make a claim because of a house fire, there is a pot of money there to help them. Whether you are a private individual, association, club, company or public body that needs protecting from possible losses, such as theft, damage to your property or causing injury to your employees, you are known as buyers, or insureds. There are always lots more people paying in than ever need to claim. So, insurance companies can offer relatively low prices to everyone who pays into the pool, while everyone in the pool knows they are covered if they ever need help. Calculating costs to individuals Not everyone will pay the same for their insurance. For example, a driver in their 50s with over 30 years driving experience is clearly a lower risk for insurance companies than a young person who has just passed their test. This is reflected in the cost of premiums. It s only fair that those most likely to make a claim pay the most into the pot. This way insurers can decide a fair price for people based on their individual circumstances. The companies that advertise and offer insurance cover are known as sellers or insurers. Most are owned by shareholders who receive a share of the profits each year. Sellers are either specialist insurers meaning they only insure one area e.g. motor insurance. Or composite insurers, who offer several types of general insurance and sometimes life assurance as well. Depending on the complexity of the cover you need you can choose to buy insurance direct from a seller or use an expert middleman, or intermediary, to help you find the right insurance for your needs.

5 The changing face of insurance How to arrange cover The insurance industry has changed a lot over the past 20 years and there are many more ways of buying insurance. Whilst you can still buy insurance face-to-face through a high street broker, technology has given rise to a large number of insurers that provide cover directly, either online or through call centres. Many intermediaries also have interactive websites and call centres. Banks and building societies now offer their customers a range of insurance services, while even large supermarket chains sell insurance products and you will probably have come across the well-known comparison websites that allow the products of different providers to be compared by inputting your details only once. To take out a policy you must first give insurers sufficient information so they can assess your risk; nowadays this is often done over the telephone or by completing an online form. If they are prepared to insure you, the insurer will then offer you a quotation based on this information. This will detail what cover they are offering and how much you will have to pay for it. By accepting the offer you enter into a contract with the insurer. You pay your premium, they provide financial protection shown in the quotation should the worst happen. Remember: When providing information to the insurer you should answer all questions openly and honestly. Failure to do so could mean your policy is void in the event of a claim.

6 Underwriting and acceptance Your policy and renewal Before insurers offer you cover they check the information you have provided to assess the likelihood of you making a claim and to decide whether they want to insure you. If they are prepared to offer cover they must decide the terms and conditions that will apply. This process is called underwriting. Your policy shows you have a contract with your insurer. It also sets out exactly what you are insured against and the conditions of the contract. Most policies are designed to be renewed each year that means it will continue after 12 months without the need for a new policy document to be prepared. You will receive a reminder or renewal notice shortly before your existing contract runs out. Once you agree to the terms and conditions and pay your premium (or the first instalment of it) the policy document, which proves details of the insurance cover, is prepared and sent to you. If there are complicated details to check it takes longer to process the policy, so you may be sent a cover note to confirm you are covered until your policy is ready. This will also tell you of any cost change or if any amendments are being made to your cover. You can then decide whether to stay with that insurer or whether to shop around for a new deal.

7 Brokers An insurance broker is an independent middleman whose job it is to search the market to find the best policy(ies) to meet your needs. Brokers vary in size, from small local businesses to large national groups. Some operate online, over the telephone, face-to-face, or a combination of all three. The advantage of using a broker is that they can find you the best policies to meet your specific needs taking into account both cover and price. They will also make sure that your insurance policies don t overlap ensuring you don t pay for some cover twice. If you choose to use a broker, this will be a retail broker one that deals with customers directly. The retail broker sometimes uses a wholesale broker to arrange cover for their clients. Wholesale brokers only deal with other brokers and often specialise in particular types of insurance, such as marine or are able to obtain cover for risks which are difficult to place. Broker networks also exist groups of small independent brokers that club together to be able to offer similar services to the bigger independent brokers. Some large insurance companies wholly or partly own an insurance broker. However, to be independent the broker should still sell insurance policies from across the industry, not just the insurer s own products. RETAIL WHOLESALE

8 Price comparison websites Thanks to TV ads with meerkats and moustachioed opera singers, we re all now aware of comparison websites. They do exactly what they say compare the price and services of a wide range of insurance companies so you can pick the one that suits you best. They do this by acting as an aggregator that is, they allow you to get quotes from lots of insurance companies by filling in just one online form. They can be very effective for saving you money but be careful you need to make sure that you still have the right cover for your needs. Cheapest is not always best! Comparison websites make their money by being paid a referral fee by the insurance provider you choose. It is important to check that the information you enter is the same as that used to calculate the premium offered by the insurers you will usually be directed to the insurance companies own website to complete your purchase. Sometimes they will ask for additional information which may change the quotation you have been given. It is important to give insurers all the information they ask for discrepancies that arise when you come to make a claim can be costly so check the details thoroughly before buying.

9 Regulation Chartered status As a policy holder your interests are protected by the Financial Conduct Authority (FCA). They are independent financial regulators and part of their job is to oversee the insurance industry. The set rules for insurers and brokers to follow are designed to ensure you re treated fairly. If insurance firms do not follow these rules they can be fined or even stopped from trading. You can find out more about the FCA at fca.org.uk/consumers. We recommend you always use an insurance company that has achieved our CII chartered status. That way you can be sure you ll receive the highest quality of service, as your insurer has demonstrated to us that they have a professional commitment to raising standards of knowledge, capability and ethical practice. We only grant chartered status to companies that prove they do this. Chartered status is the gold standard and recognises firms who embrace best practice in the areas of conduct, culture and competence. Policy holders can also seek help from the Financial Ombudsman Service (FOS), which was set up by parliament to sort out individual complaints that consumers and financial businesses aren't able to resolve themselves. Their service is free to consumers and the FOS has the power to order the firm to pay compensation if they think a complaint is justified. However, it doesn t write the rules for financial businesses or fine them if rules are broken. That s the role of the FCA.

10 Remember if you have any questions about insurance, just ask me, Ciindy /AskCiindy