Bruce Bisset: Loss of faith in insurance claims

Seems to me when an industry is founded on fear, it cannot lose.
Arms manufacturers, security firms, and to a large extent pharmaceutical companies all survive and prosper because, at root, fear drives people to invest in and make use of them.
So too with insurance companies. If you didn't fear that one day your house might burn down or your boat sink, you wouldn't feel a need to take out an insurance policy.
The industry would reply it's simple prudence, not fear, to cover a bet against chance - and it's true even those "new age" enough to believe you get what you attract can still be smitten by random events.
But it is fear of loss that causes people to pay their premiums and trust they are covered should the worst happen.
Whether they are covered is another matter.
See, insurance purports to guarantee repayment of loss, but when major disaster strikes and thousands of claims need settling such guarantees can suddenly appear rather thin.
Such as the Christchurch earthquake exposing that region's major insurer, AMI, as having less-than-adequate funds to pay out. Well, at least to the point of requiring a $500 million reserve government bailout fund to be set up to underwrite its liabilities.
Which is curious, because I thought the whole point of paying the sizeable premiums we do to insure things was to ensure that the industry itself was, er, sufficiently insured.
Perhaps I was naive. Perhaps the point is to provide cash to build high-rise offices, and buy up commercial land and stocks, and pay significant dividends to those who invest in the business itself.
Certainly insurance companies are some of the largest fund-managers and property portfolio holders in the world.
As party to a contract for insurance you might be glad for that, imagining the insurer, having built up a capital and asset mountain, will cut into that mountain if it must.
Surely that's the nature of the contract.
Ha! Clearly, not so. For what happens when the industry faces a major pay-out, as from Christchurch's troubles? That's right: premiums go up. And going up they are: anywhere between 20 and 100 per cent, depending on the type of cover you hold.
In other words, we the insured are the ones paying out, not the industry.
This demonstrates insurers cannot in fact guarantee to cover your losses. Because any increase in premiums resulting from a one-off event is an admission they have not properly covered all contingencies.
When an individual takes out insurance the company sets the premium based on their best calculations as to the chance of loss, including significant natural disasters - both in that region and country, and on a global scale.
Ok, they might get the formula wrong, but since most major insurers have been around a century or more you'd think they'd have it down by now. So, the country's covered, right? And the total amount the industry reaps from everyone's premiums is the total it (stress) is comfortable with to meet all likely claims.
Then Christchurch happens and you discover that's not actually so. That, I suggest, is a breach of faith.
Now, insurers have always been quick to insert all sorts of exclusion clauses in their contracts, including the notorious "Acts of God" exception.
Interestingly - and perhaps this owes something to the 2003 Billy Connelly film The Man Who Sued God which, while fictitious, raised good argument - such clauses appear to be little used these days; I could find no reference to God in our current policies. Good.
But there's a difference between invoking a specific exclusion, and a general unwillingness (or inability) to pay. It would be nice to think this could be turned round: that the fear of lawsuits for general breach of contract could be made real, and the industry given a taste of its own medicine. So they get it right, do what we pay them to do, and cover us adequately. So we are not all held to ransom because of their failure to perform, and can put part of the fear of loss behind us.
That's the right of it.
Bruce Bisset is a freelance writer and poet.