How does insurance work?

[SafariTin]

He wasn't supposed to switch you to a more expensive policy. You have a dodgy broker.
Non of that is your fault and the insurance would still claim the money back from the party that was at fault.
How much you paid vs how much you can claim is irrelevant, insurance is a group fund/scheme. Everyone' premiums contribute towards covering the damage of those less fortunate.

I think this is what's at the heart of my question. I also understood this to be "how insurance works", but from the responses here and my experience this doesn't seem to be the case. It seems as if each individual is seen as profit opportunity with premiums being increased once the total amount collected in lower than the total amount paid out.

Insurance is more about risk, than it is about fault. When it comes to car insurance fault is just another factor that adds to the risk, just like living in a dodgy post code also adds to your risk profile, regardless of how careful you are.

My counter argument is then that the risk should be spread and not each individual treated as a profit centre. The bicycle guy who hit me had no loss, the insurance has no loss and I have an increased premium.

I didn't think that this is how insurance works.

 

[rietrot]

I think this is what's at the heart of my question. I also understood this to be "how insurance works", but from the responses here and my experience this doesn't seem to be the case. It seems as if each individual is seen as profit opportunity with premiums being increased once the total amount collected in lower than the total amount paid out.



My counter argument is then that the risk should be spread and not each individual treated as a profit centre. The bicycle guy who hit me had no loss, the insurance has no loss and I have an increased premium.

I didn't think that this is how insurance works.

Individual risk get allocated so that high risk people pay more in premiums, which is fair. Insurance companies can actually make a profit unlike medical aids which is also a group scheme and not allowed to make a profit(they need to charge addition admin fees). So the insurance company pool all the money, investment in some stuff, pay out claims and take a profit. If your policy say you are covered for accidents and you then make 10 accidents you are covered someone won't ever make an accident so it balances out.

They can't give a risk rating for how much bad luck a person has or is going to have. It works on the idea that well shît happens.

 

[Hemi300c]

This.

All insurers will have rules about this sort of thing. There is even a commission clawback table produced by the government that specifies how much commission can be clawed back if a policy is cancelled within a certain time frame. It depends on if the commission was paid up front (ie lump sum) or as and when (monthly).

Of particular importance is that 2 years after the start of your policy, no commission can be clawed back. Your broker keeps all of it. So yes, this kind of churn is common - brokers do it to get a bit more money. They find you a new insurer, you pay a little more, broker gets a nice big chunk. A nice Christmas bonus. Insurance companies do all they can to keep clients, but a lot of it is controlled by the brokers, so there isn't much they can do.

You'd be surprised at the amount of software engineering effort spent on commission systems in insurance companies.

It isn't even dodgy brokers that do this - it is all of them. They all want a pay day.

Also those events may not have been your fault, but it doesn't matter, it shows on your policy as a claim. Let's say you park your car in a stupid place and something happens - it isn't directly your fault, but you indirectly caused it by parking in a silly place. Not saying that this is the case with you, but look at it from the insurance companies - they care about money in vs money out.

Stop talking kak

 

[Ancalagon]

Stop talking kak

I worked for an insurance company for over 2 years.

 

[Hemi300c]

I worked for an insurance company for over 2 years.

And learnt nothing. You aren't a FSP so stop giving advice. Probably in the life industry or for a kak insurer.

 

[Ancalagon]

And learnt nothing. You aren't a FSP so stop giving advice. Probably in the life industry or for a kak insurer.

Ha ha ha! What bad advice did I give?

Multiple that I worked with, some who came from other companies where they had been working in insurance for their entire careers, said the same thing.

Yes, life insurance. Do you not think churn happens on other products?

What did I say that offended you so much? Ha ha ha ha!

 

[Hemi300c]

Ha ha ha! What bad advice did I give?

Multiple that I worked with, some who came from other companies where they had been working in insurance for their entire careers, said the same thing.

Yes, life insurance. Do you not think churn happens on other products?

What did I say that offended you so much? Ha ha ha ha!

Then your commission statement is totally irrelevant and only applicable to life policies.
I'm just guessing I'm right as I have a little insurance experience as well but only short term.

 

[Hemi300c]

Ha ha ha! What bad advice did I give?

Multiple that I worked with, some who came from other companies where they had been working in insurance for their entire careers, said the same thing.

Yes, life insurance. Do you not think churn happens on other products?

What did I say that offended you so much? Ha ha ha ha!

Churn is a term use for any renewable period product.

 

[rietrot]

And learnt nothing. You aren't a FSP so stop giving advice. Probably in the life industry or for a kak insurer.

You know what's good advice. People should avoid FSPs. Especially brokers and financial advisors that charge a percentage.

 

[chrisc]

You must bear in mind that short term insurance companies must make a profit
That have staff to pay
Overheads to meet
They need to keep a reasonable cash reserve
Their premiums are carefully tailored to ensure over a reasonable period (3 to 5 years) they will come out in the black

Therefore, in a competitive industry, you generally get what you pay for. Do not believe TV adverts at all.

If you have a poor claims history and are seen to have more than the general average number of claims, even small ones, you can expect to have your premium loaded and/or to have a higher first amount payable (excess)

Ins cos do not mind a substantial claim now and then. But if you submit a series of small claims, your account will attract more scrutiny. As well as the claim amount, it costs the ins co a fair bit to process your claim. Whether or not the claim was your fault, the ins co has to pay and will not necessarily be able to recover the costs from a third party

I have had 2 cars written off due to collisions from other cars and lorries. One R385k write off was caused by a lorry and trailer overloaded with oranges coming from Clanwilliam. There had been a prior accident on the N1 near Bellville, he misjudged the traffic and his speed and damaged 11 cars and killed 3 people. I was second from the front and got squashed. The driver had no licence, the number plates front and back were different and there was no road licence. The trailer had no brakes. The driver got arrested, the owner had no assets and was not insured. This was a R8m claim for everybody involved and there was no prospect of recovery.

My broker retired (he had lost interest a few years prior) so I changed from Santam to Alexander Forbes. Much better service, intelligent people to deal with and my premium, which I pay annually, is 35% less than Santam and there is no first amount payable (excess)

 

[chrisc]

Now a word about annuities

Old Mutual and Sygnia Asset Management have a product which invests in basically the same range of overseas companies

The gross profit (increase in value) over one year was 11%
Old Mutual deducted 10% for fees, so with expenses, your annuity value dropped by 2%
Sygnia deducted 1% for fees. So with expenses, your annuity increased in value by 9%

If you ask OM about this, their answer is that their fees are "industry standard". Not true, they are gouging the customer big time

 

[Hemi300c]

You know what's good advice. People should avoid FSPs. Especially brokers and financial advisors that charge a percentage.

In short term the commission is fixed and comes out of the risk premium and you will pay the same as going direct. And judging by the comments on MYBB 90% would get screwed by insurers expecially the kak insurers.
Any fees and additional cost have to be agreed by the insured so your comment is invalid.

 

[Ancalagon]

Then your commission statement is totally irrelevant and only applicable to life policies.
I'm just guessing I'm right as I have a little insurance experience as well but only short term.

I'd be amazed it was specific to life insurance, although the details may differ. You know there will be commission clawback and you know that there will be some churn.

Don't know why you disagree so vehemently.

 

[Moto Guzzi]

I would like to use this thread to understand how insurance works. I've had some misfortune which has resulted in some disagreements with my broker due to my understanding of how insurance works and the actual implementation being different. I'll detail what happened in my next post and will try and update this first post with the answers to the questions I raise.

Well......So far I was not a winner in any insurance + health.
-If they wants to insure you, you can't be that bad.
-It seems that the "Grouping Effect" has watered down or busy disappearing, seeing I finance my claims so far basicly through them, at this point they win, and even if my car burn down, its pocket change to them..
-If they put up my premium and I left for another one with a lower premium, they surely win & pocket, money not carried over to new insurer, I loose, not even a claim. Now I start from fresh again, and if something goes wrong now, the premium shyrocket and now they dont want to loose me.
-So far all my claims, geysers & front windscreens I basicly paid myself(Through Them).
-So how do they work, I understand, I don't, I do, I don't......I do.
-An agent once told me how this and that can happen, now that may come true, but what surprised me is after the long talk, he still was eager to insure me.

 

[Hemi300c]

I'd be amazed it was specific to life insurance, although the details may differ. You know there will be commission clawback and you know that there will be some churn.

Don't know why you disagree so vehemently.

Because you wrong and indicating commission on short-term is not fixed, expecially with the 2year statement.
Additional and voluntary fees are flexible and negotiable but the client must accept these.

I'm gatvol of people giving crap or incorrect advice and thereby adding to the already tarnished name the short term industry has. Yes it's also caused by crap insurers decisions etc.

 

[Ancalagon]

Because you wrong and indicating commission on short-term is not fixed, expecially with the 2year statement.
Additional and voluntary fees are flexible and negotiable but the client must accept these.

I'm gatvol of people giving crap or incorrect advice and thereby adding to the already tarnished name the short term industry has. Yes it's also caused by crap insurers decisions etc.

What does commission have to do with the client? Yes, they pay it, but they don't know about it.

Commission is fixed? So you don't have clawback? If a broker signs me up with short term insurance, and I change policies within 6 months, they won't claw commission back from him?

 

[Hemi300c]

What does commission have to do with the client? Yes, they pay it, but they don't know about it.

Commission is fixed? So you don't have clawback? If a broker signs me up with short term insurance, and I change policies within 6 months, they won't claw commission back from him?

Commission is same as premium paid for by time on risk in ST Ins.

 

[SafariTin]

Taking all of the above into account, is self insuring a realistic possibility?

At present I am contributing to a "savings pot" that will be used to pay any claims I have. If something happens and the "pot" is too small the insurer "lends" me money against future premiums at a higher rate. With this model at the end of my lifetime the insurer will typically be the winner.

How inflated are vehicle repairs under insurance claims? I suspect that if I paid cash for my repairs that the repairer would have been negotiable. Thus reducing the amount of funds taken out of "the pot".

If I keep my own"pot" I could earn returns on the investment. If the "pot" is short, I lend money which would likely be at a lower rate than what I pay for the insurance.

Granted, this will not work for the majority of people, but could self insurance work for some?

 

[rietrot]

Taking all of the above into account, is self insuring a realistic possibility?

At present I am contributing to a "savings pot" that will be used to pay any claims I have. If something happens and the "pot" is too small the insurer "lends" me money against future premiums at a higher rate. With this model at the end of my lifetime the insurer will typically be the winner.

How inflated are vehicle repairs under insurance claims? I suspect that if I paid cash for my repairs that the repairer would have been negotiable. Thus reducing the amount of funds taken out of "the pot".

If I keep my own"pot" I could earn returns on the investment. If the "pot" is short, I lend money which would likely be at a lower rate than what I pay for the insurance.

Granted, this will not work for the majority of people, but could self insurance work for some?

You should self insure as far as possible. On my old car I only have 3rd party cover. And if it breaks/get stolen or burns down I can basically just swipe my credit card for a new old car. It would be a problem though if I write it off twice in a short amount of time. So after one replacement I'll probably get insurance and build up an emergency fund again.

 

[diapason]

Taking all of the above into account, is self insuring a realistic possibility?

At present I am contributing to a "savings pot" that will be used to pay any claims I have. If something happens and the "pot" is too small the insurer "lends" me money against future premiums at a higher rate. With this model at the end of my lifetime the insurer will typically be the winner.

How inflated are vehicle repairs under insurance claims? I suspect that if I paid cash for my repairs that the repairer would have been negotiable. Thus reducing the amount of funds taken out of "the pot".

If I keep my own"pot" I could earn returns on the investment. If the "pot" is short, I lend money which would likely be at a lower rate than what I pay for the insurance.

Granted, this will not work for the majority of people, but could self insurance work for some?

Just bear in mind that part of your premium is for damage you do to other people's cars. What if that other vehicle were an expensive luxury type?