Common Myths about General Insurance

Every day we come across clients with misunderstandings about general insurance. Here we've features the Top 5 Insurance Myths developed by The Insurance Council of Australia to help clarify your understanding of key issues.

Myth Number 1 - Insurers don't pay claims OR Insurers try to avoid paying claims.

False - The Financial Ombudsman Service reports that over 98% of insurance claims are paid without dispute. The Australian Prudential Regulation Authority reports that Australian insurers pay an average of $95 million in claims each working day to the Australian community. Insurers will not pay for claims that fall outside of the terms and conditions of the insurance policy or claims that are made fraudulently. A free service exists for managing disputes with your insurer through the Financial Ombudsman Service. All costs are met by the insurance industry and decisions made by the Ombudsman are binding on participating insurers.

Myth Number 2 - I don't need insurance - I have never experienced damage or loss to my assets, if I do the government will replace my assets or assist me.

False - Most Australians experience a financial loss at some point in their lives. Insurance is about protecting yourself and your family from a loss that you would otherwise not be able to financially recover from.

Most Australian's do not routinely have enough savings to rebuild a house or pay off a mortgage if your current property is destroyed. Some consumers feel that they have paid premiums for years without any need to make a claim, but insurance is about protecting yourself against large financial impacts that may only occur once or twice in a lifetime if you are prudent.

Managing your risks, avoiding accidents, protecting and maintaining your property to lower the probability of having to call upon your insurance demonstrates sound judgement, something that is usually reflected in your insurance premium.

Myth Number 3 - Insurers have collected my premiums for years, insurers are therefore obliged to cover me for any damage whatsoever that I might claim.

False - All policies have limitations and exclusions of one form or another. Without these exclusions the cost of insurance would be astronomical as the policy would be required to compensate the policyholder for all manner of incalculable risks.

Policy terms and conditions exist to protect the consumer. Insurance policies cover a wide variety of circumstances and issues that policyholders seek to protect themselves from through purchasing insurance. It is important, for both the insurer and the policyholder, to carefully define and understand what is covered under the policy and what circumstances are not covered. Consumers should carefully research their insurance needs and then seek out products that provide the desired insurance cover at a price the consumer is willing to pay.

Under Australian Law insurers must make available a Product Disclosure Statement (PDS) to policyholders so that these terms and conditions can be read and understood. Policyholders are usually required to formally acknowledge receipt of the PDS and that they have understood the terms and conditions. Consumers should read the PDS before purchasing a product to ensure that they understand how the product operates and what their entitlements to make a claim are.

Myth Number 4 - All insurers are the same, there is no difference in products or price.

False - APRA reports that there are currently 111 general insurers licensed to operate in Australia. This number of general insurers brings with it a large number of choices for consumers. Products offered by individual companies differ significantly in terms of coverage, terms & conditions, exclusions and costs. Consumers should ensure that they research each purchase of insurance to make sure that they are buying cover that suits their particular circumstances and needs.

Myth Number 5 - Premiums are too expensive and don't reflect the real world.

False - Insurance works on the principal of placing a cost on the risk of an event occurring that causes damage to an asset owned by a policyholder.

Insurers rely upon actuarial evidence to help determine premiums. Insurers invest heavily in the science of calculating and understanding certain risks, for example crime rates for certain postcodes, the risk of flooding, hail, fire or cyclones. Insurance works on the principal of placing a cost on the risk of an event occurring that then causes damage or loss to an asset owned by a policyholder. If the risk to insured assets is shown to be increasing, then there will generally be a corresponding increase in the costs of accepting those risks (i.e. Premiums). Policyholders can often reduce premiums by reducing the risks to their assets, for example by installing security systems, maintaining the property or choosing to build from materials that are more resistant to hazards in the area. Some costs on insurance are beyond the control of insurers and policyholders, for example taxes imposed by government on insurance products.

Source: www.insurancecouncil.com.au