Got a car insurance quote? What about the small print?

“You know, it sounds all good you accepting this car insurance quote but you may well lose because you probably didn’t understand all the small print!”

A tow truck operator always thought he was covered for the car he was towing until one day, he lost the car he was towing resulting in a write-off. He then discovered the “small print.” He was not aware that his policy had an exclusion that said that the policy would not cover a situation where he had not secured certain safety chains before towing the vehicle.

The client’s need to have a clear understanding before buying car insurance

In any relationship, it’s all about communication, and more communication. In life, one can never communicate enough. Ineffective communication can cause more problems than solutions. It would be correct to say that careful, sincere, and effective communication is crucial to having a successful relationship.

There is a relationship between insurers and their clients. It can be quite a complicated relationship and possibly full of challenges.

The insurance industry always has the customer in its centre of focus, and the success or failure of the industry is determined through the interactions with the client. It cannot be disputed that customer dynamics are always changing. Clients are more in the driver’s seat now than ever.

Understanding car insurance

Understanding car insurance is important i.e. how it actually works, what it can achieve for you and what it can’t achieve for you?1 For instance, people that can’t read or write can’t depend on written policies. They may mistake insurance for a lottery or some savings plan.

The responsibility of the insurer

Personal Finance in a 2014 article pointed out an important principle, namely, that an insurer such as a car insurance company has to point out any clauses that limit your cover and also has to ensure that you understand them before signing the contract.

The onus is on the insurance company to explain the various ‘small print’ clauses to the motorist. After all, the insurer will have spent many, many hours with a team of experts designing a particular cover product, and building in the various clauses that would mitigate risks for them. They know the product inside-out, as well as the language used.

The responsibility of the client before accepting a quote

Along comes Mr Average, who is totally unfamiliar with the product, the limiting clauses, and the fancy words. Certainly it is not your task to try and unravel all the possible ‘mind-boggling’ small print clauses which you are seeing for the first time.

Although this discussion has centered on the insurer’s responsibility towards the client, we must remember that there is also the other side of the coin. Consumers should make sure that they understand all small print before accepting a car insurance quote.

Honest transparent client information is crucial

The client needs to be totally honest with the insurer especially regarding the information that is provided at the time of buying the policy. The reason for this is that the policy, the potential risk profile and underwriting criteria is all based on that information – so the information will affect the small print. If the client doesn’t tell the insurer the whole story, then there could very well be a problem at claim time!

Now that we have understood the problem, how can we best address it for the prospective client?

How should the car insurance company communicate with the client?

The client must be made aware of limiting clauses. Thorough communication to the client about their need to clearly understand the policy was reinforced by the Ombudsman for Short-term Insurance when they overturned an insurer’s rejection of a particular claim. The issue at stake in that matter was that the client was never made aware of an important limiting clause in the contract. The insurer responded that the complainant had seen the policy before buying it.

Nevertheless, the Ombudsman enforced Section 4.3 (i) of the Policyholder Protection Rules (PPRs) that requires the insurance company to disclose details of any limiting clauses to the prospective client in a way that suits the individual so that the client is in a position to make an informed decision regarding the purchase of the policy.

Perhaps in the case of an illiterate person, a short video clip can be shown that highlights the vital clauses of the policy. In this way, the chances of any misunderstandings, misinterpretations, or incorrect expectations by the client will be minimised – especially when it comes to claim time.

It’s not good enough to just communicate to the client the relevant information, how it is communicated is equally important.

How to ensure the client has understood?

The client should be asked whether they understand the policy before the she/he agrees to the quote. The client might have felt intimidated by some of the insurance terminology that was used and by asking this it provides the client with the opportunity to ask questions. What would be the best way to reassure you that you have understood the small print of the insurance policy? Surely, it’s all about an effective two-way communication?

Client feedback is crucial

It is important, that you are not only asked if you have clearly understood what was said but, if necessary, you should be given the opportunity to provide feed-back right there and then about your understanding of what was said. You should feel at ease to provide feedback. In this way, the it can be can established that you are on same page in terms of understanding the small print.

Once satisfied, you as the client can sign in a special designated field on the contract that acknowledges that you have clearly understood all the limiting clauses or small print.

Claim time has arrived

Let’s face it – when nothing happens, all is well, and the car insurance policy just sits in the bottom draw or on the computer. It’s when it is claim time that the tyre hits the road.

It is obvious the car insurance industry wants to have happy customers, who will gladly promote their product to their neighbours and the people at the office.

How can car insurance companies avoid creating unhappy customers?

So now it is time to claim. In the first scenario, after submitting the claim with its subsequent rejection, you as the client discover that your expectations were actually outside what the policy could offer. Whether justified or not, you may feel duped or let down by the company, and possibly angry at the fact that you felt that you were not fully informed before you took out the policy. As a complainant you turn to the Ombudsman for help.

So now it is time to claim. In the first scenario, after submitting the claim with its subsequent rejection, you as the client discover that your expectations were actually outside what the policy could offer. Whether justified or not, you may feel duped or let down by the company, and possibly angry at the fact that you felt that you were not fully informed before you took out the policy. As a complainant you turn to the Ombudsman for help.

In the second scenario, you as the client, fully informed at the time when you took out the policy, realise that either you can or are unable to claim for the car accident, because you know about the limiting clauses in the car insurance policy. The fact that you had signed, declaring that you had understood the important clauses is not likely to motivate you to turn the claim rejection into a major issue. Although perhaps disappointed at the fact that you couldn’t claim, you are still satisfied that you were treated fairly by the insurer.

Sources:

1. 1. Google books: Climate Change, Justice and Sustainability
   2. Insurers can’t hoodwink you in the small print