Insurance policyholders sickened by 'unfair' excesses on claims
One in 10 calls to the Insurance and Financial Services Ombudsman are about excesses levied by insurers on claims.
And no wonder when what a policyholder thought of as one incident can result in two, three, or even 10 excesses to be paid.
Ombudsman Karen Stevens says: "I think the perception is that if you are paying more than one excess then it is unfair."
An excess is a sum of money an insurer deducts from a claim payout. If it costs $1000 to repair your car after you have skidded into a ditch, and the excess is $300, then all the insurer has to pay is $700.
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There are three kinds of excess shock that cause the "it's not fair" feeling.
The first is when policyholders find themselves facing multiple excesses.
ONE EXCESS, TWO EXCESS, THREE EXCESS, FOUR...
Stevens recently handled a claim from a man whose car had been broken into.
A tablet and running shoes were taken, triggering an excess under his contents insurance. Also swiped was a car key for a different car, triggering an excess under a car insurance policy. His work keys were also nicked, triggering an excess under his business insurance.
Some insurers recognise the awfulness of situations like this.
State, for example, will only charge one excess if a policyholder has both their home and contents cover with it, and a single event triggers claims under both policies.
The insurer in the case of the unlucky car-theft victim "settled" his complaint after he went to the ombudsman, paying him some money, which shows that putting up a fight can be worthwhile.
Another case Stevens handled was that of a landlord whose property was damaged by tenants in 10 different places.
Each piece of damage was likely to have been the result of a different event at a different time, so 10 excesses were deducted from claims payments.
In another case a man contacted his insurer to make a claim after his car was vandalised.
The insurer inspected the car and found there were at least seven separate areas of damage.
Each was a separate bit of damage, meaning seven excesses had to be paid totalling $1750.
The damage cost $920 to repair, so the insurer had to pay nothing.
BUT IT'S NOT MY FAULT
A man complained to the ombudsman after he was charged a $500 excess after a truck drove through his fence. He felt as it wasn't his fault, he shouldn't be left out of pocket.
He lost his case.
Excesses are not meant to be fair. They are a business pricing tool designed to achieve certain business outcomes.
This was revealed by IAG which told investors in a recent presentation that it was lifting excesses on its car insurance following a spike in claims.
The aim was to protect profits, while avoiding making all policyholders pay higher premiums.
Excesses also prevent a flood of small claims.
"Self insurance takes out a lot of very small claims," Stevens says.
Excesses ensure people have "skin in the game".
It gives them a financial incentive to take care, for example, parking their car only in secure places, and not leaving valuables in the boot.
There has been significant excess inflation, and people who haven't made a claim in years could get a shock next time they do.
State Insurance charged a "standard" excess of $150 on its house insurance in 2006. It's now $400.
Excess inflation has also been the result of people opting for higher excesses to secure lower premiums.
State gives the example of a 60-year-old homeowner in Mount Albert in Auckland with a debt-free 1950s, three bedroom brick home with a sum insured figure of $342,000.
In 2015 the premium would have been around $793, with a standard excess of $400. If they increased their excess to $1000, the premium would be reduced to $680 per annum.
"Consumers ought to know and understand that if they make that choice, and something does happen, they are responsible for paying that excess, and that there may be more than one," Stevens says.
Stevens said if policyholders demanded lower excesses, the price would be higher premiums.
EXCESSIVE EXCESS SHOCK
Many policies have different excesses depending on the type of claim made, so people who haven't read their policies may be in for a shock.
Lend your car to your youngster, and in the event of damage, the excess will almost certainly be high.
Take the car insurance policies provided to Police Association members by IAG. The standard excess is $300, rising to $800, if the driver is under 25, and $1050, if they are under 21.
In one case handled in 2015 by the ombudsman, a man complained his insurer charged an excess of $3000 on a burglary claim.
The insurer had lifted his excess for burglary claims as a result of thefts from his property.
It appeared the insurer had notified him of the rise in excess, but the man has not received, or read, the letter.