Understanding Property Insurance

August 20, 2016

Part II 

As highlighted last week, insurance is an investment we all need. As owners of any property, it is in your best interest to have some sort of protection against risks such as cyclone, flood, fire and burglary. And, for many, the answer is buying a property insurance cover.

But not every Fijian family has a property insurance cover. According to Reserve Bank of Fiji, regulator of the insurance industry, interest to invest in insurance in Fiji is very low. Insurance uptake is around 12% which is mostly among those with formal jobs and in rural areas. A recent stakeholders’ seminar organized by the Council on ‘property insurance’, heard that only 10 per cent of the country’s population have ‘property insurance covers’

The devastation caused by TC Winston saw many families becoming homeless who are now relying heavily on the State-assistance. Most of these are the low income earners who don’t have social or financial protection to withstand such risks.

The question is: “Why do the public rely on government or their FNPF money or their immediate families for assistance to rebuild their lives?” Is it because they cannot afford insurance covers? Is it that they do not have confidence in the insurance sector? Or is it that they do not understand the importance of insurance or they cannot find insurance products that suit their needs?

Many consumers would concede that the insurance sector is quite complex in nature, which makes it difficult for them to comprehend how the industry works.

The requirements such as the age and type of building structure, wind resistance, location of the property (whether it is in a flood prone area), security features of the building and the engineer’s certificate. Insurance companies consider the Engineer’s Report a pre-requisite to obtaining property insurance and without property insurance, one cannot get a loan.  Although, depending on the acceptable level of risk, the need for this pre-requisite can defer between different insurance providers.

Not all low income earners can afford present premium rates. In addition, it is hard for them to bear the cost of meeting all requirements set by the insurers, such as providing an engineer’s cyclone certificate. However, not all insurance companies are then prepared to provide insurance cover for their homes.

The insurance companies also don’t have tailor-made insurance products to suit the needs of the low income earners. Perhaps the insurance companies should take lead from the New India Assurance, which is the only insurer that provides Housing Authority a full cover for their mortgaged properties. This is inclusive of properties without valid engineer’s certificate.

A substantial proportion of the customers of Housing Authority who fall in the low income category are not able to afford engineering upgrading certification after every seven years. Thus, this potentially disqualifies them from the cyclone cover.

Another major concern regarding property insurance is the lack of full disclosure of information to consumers when they purchase insurance cover.  Consumers have little opportunity to shop around to compare different insurance products on offer. There are no Product Disclosure Statements (PDSs) provided for different types of insurance cover to allow consumers to make informed decisions. Australian insurers are required by law to give PDS to consumers.

The insurance industry has much to learn from the hire purchase industry about having pre-contractual disclosure statements. It is a legal requirement to disclose all important information on a standard pre-disclosure form even before a consumer enters into hire purchase agreement.

Then there are some insured consumers who do not know what all they are covered for. The Council has received concerns from some consumers that the ‘insurance agents’ do not tell them much about the policy at the time of signing for the cover.  Some say the policy document has ‘fine prints’. Hence, they faced difficulty reading the document, let alone understanding it. This is more to do with pre-disclosure; how policy is written; how renewals are done; provisions on access fee and exclusion clause; and making claims to insurance providers.

Next week, read on code of conduct for insurers.