20 July 2016
Supreme Court decision illustrates why insurers are so mistrusted
"Lies are lies. Insurers will investigate suspicious claims & we make no apology for doing so as it keeps premiums down for honest customers."
That was the angry tweet posted earlier today by James Dalton, the Association of British Insurers' head of general insurance policy. He was reacting to a ruling from the Supreme Court, which stated that insurers weren't within their rights to turn down claims simply because a customer had lied. The lie needs to be relevant.
In the case in question, a group of insurers had turned down a £3m claim by a shipping company after it had discovered that its owners had deliberately lied about the cause of accident which damaged their ship.
In the event, the lie was irrelevant - because the damage was shown to have been caused by bad weather, and the insurer was liable to pay. Nevertheless, it tried to wriggle out of it by saying that the whole claim was fraudulent, as the owners had not told the truth initially.
Not a landmark ruling, a victory for common sense
Although the ruling is being heralded as a landmark, I think its importance is being overblown. New legislation that came in a few years ago already set the direction of travel - making it clear that insurers couldn't turn down claims if customers neglected to mention something that wasn't relevant to the claim they were making.
For example, if your house burns down, and your insurer then discovers that you hadn't told them you had a lodger, that still wouldn't be grounds for them to reject your claim.
The Supreme Court ruling is not so different. All it's saying is that insurers have to pay claims for things that they agreed to insure. And if the facts show that an incident was insurable, it doesn't really matter if the customer has muddied the waters by throwing in a few untruths along the way.
In the consumer insurance world, the Financial Ombudsman Service already forces insurers to pay claims under these circumstances. As ever, it's all about context.
Insurers vs consumers
But what's most interesting about today's ruling is the way that the industry has reacted.
Mr Dalton's tirade about lies being lies perfectly illustrates the industry's struggle to see the world in anything but black and white. In fact, almost all insurance claims land in the grey - and if the insurance industry is to ever rebuild trust, it needs to show consumers that it's willing to be reasonable and give people the benefit of the doubt.
What Mr Dalton misses is that if the insurance industry doesn't change its mindset and its rhetoric, consumers won't change their habits either.
People lie to insurers because they worry that their claim won't be paid. It's easy to see the situation where a customer lies about the circumstances of a claim to make sure it definitely gets through. It may be that if they'd told the truth from the outset, it would have been paid anyway. But consumers (justifiably I think) worry that insurers are always looking for ways to wriggle out of claims. And that shapes their behaviour, especially when the stakes are high.
It's all the more worrying when the industry trade body is out front cementing this perception. The ABI needs to lead its industry towards a better relationship with customers - not simply dig in and protect its members' interests.
Mr Dalton's view that a lie is a lie - is ironically not true. Like everything, it depends on the context. I'd advise that the ABI reread the Supreme Court's ruling.