Navigating the Shark invested Insurance Industry

Irish consumers face what can be very expensive decisions on many types of Insurances on a frequent basis.  Some of these insurances we are compelled to buy, such as car insurance, mortgage protection and house insurance.  Whilst there are other types of insurances we choose to buy, such as health, illness cover and gadget insurance.  Paying too much or getting inadequate cover can eat up a lot of the household budget and to add to this the Insurance industry in Ireland, unfortunately, is gaining a reputation for not putting consumers first.  The fact that many consumers do not necessarily fully understand what certain insurances are for and may feel pressurised into buying these by advisors praying on their fear exacerbates the problem.  So to start with insurances we are obliged to buy.

Mortgage protection insurance is legal a requirement for anyone who is taking out a Mortgage.   The problem is there so many different options and choices of cover – level, reducing, convertible, indexing, life only, life and serious illness, dual/joint…etc. etc….you get the point!…..For many, the decision which typically comes at a stressful time (generally at the back end of trying to buy a home) means people are less likely to make an informed choice and shop around than they normally would do.  Typically consumers are wheeled into the back office of the Bank that lent them the money and sold a policy by a financial advisor with a fancy quotation system.   If this occurred in the normal scheme of things consumers probably wouldn’t buy the policy they end up with.  I know this as a fact as I worked in the banks for over 10 years in Ireland and had experience of this first hand.  Also, there is a misnomer by many that are the type of insurance covers mortgage payments if they are unable to work or laid off but this is not the case, it is only paid off in the event of an untimely demise.  This led to a scandal in the UK which the UK Government forced the banks and insurance companies to rebate consumers of all premiums they paid.  Incidentally, this type of insurance is called payment protection insurance and the Irish Government to date have not yet taken the line of our neighbours across the Irish sea.

Another insurance we are required to purchase is, of course, car insurance.  It’s never been more important than now to review your policy, especially since June 2013, which since then the average insurance costs have soared by more than 70 per cent.   Using brokers to shop around and/or going online can help but you need to know what to look for particularly if you do this online.  I had a client contact me last week who had a very competitive quote from one of the online companies but begged me to get an alternative (even a more expensive one) as they found the customer service experience too painful to deal with especially at claims stage.  They were actually stranded at the side of the road despite having breakdown assistance on their cover but couldn’t get through to the insurance company to clarify this.  Brokers can typically value and save in cost with nuances, an example of which is adding a secondary driver to a policy which is legal and can save a lot of money.

So for the insurances, we choose to buy.  New forms of insurance that have come onto the market are mainly due to technological advances.  Cyber insurance and gadget insurance to name but two.  The Central Bank published a report last year “consumer experience of purchasing gadget insurance” and found that the majority of consumers did not understand what gadget insurance covered.  They also found that many consumers did not plan to buy this insurance until it was sold to them as an add-on at the point of sale.

Finally to health insurance, which is a massive industry in Ireland with over 2.1 Million people insured.   The market is seriously convoluted and despite a very good government website, the health insurance authority (www.HIA.ie) which is an excellent comparison site, the fact that there are over 400 plans available across three different insurers, makes it virtually impossible for consumers to buy with confidence.  Fear of change and perceived complexity is causing older members to pay between 25pc and 30pc extra for their health cover.   Policies the government have introduced, such as the lifetime community rating which was introduced 3 years ago, have not had the desired effect intended in my opinion.  This levy, which effectively encourages younger people to affect health insurance by placing an additional cost on anyone 34 years of age or older of 2% per year they are over the age of 34.  So for myself for instance given I am 44 years of age,  if I didn’t have health insurance and bought it for the first time now, I would suffer an additional cost of 20% per year (10 years by 2%) for 10 years which is a lot of money.  Whilst this levy was supposed to control premium inflation since its introduction premiums have only gone one way and that is north.  A lot of those who bought insurance bought basic plans and whilst they cost around €500 per year per adult they are poor in terms of what they cover.   Given the average cost of health insurance in Ireland is circa €2,500 for a family of four it is really important to get proper independent advice.  The issue is that because there no money be to made by independent advisors in this area it is very difficult to do so.  If you speak to one of the three health insurance companies, they will point you to their own plans of course and generally a more expensive option than what you might need.

So basically, in summary, it is a case of “Caveat emptor”, let the buyer beware and my advice is to get independent advice where possible, even as a second or third opinion.

Nick Charalambous is the Managing Director of Alpha Wealth and Alpha Health, Financial Advisors based in Cork and Dublin.

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