Think about an insurance policy for a minute. What is it for? Why buy it and for that matter, why sell it? Let’s not go to doubting our profession, but give it some thought. Why do people buy insurance? There are more reasons than we have time and space for, but let’s cut to the chase here. People buy insurance so that there is money available if something happens. That’s it. Change out the policy type and the company providing it and that’s the basic premise. The consumer pays the premium in return for the future promise of payment of covered losses. We know this, right?
All of this depends on utmost good faith. What’s that? According to Investopedia, “In the insurance market, the doctrine of utmost good faith requires the party seeking insurance discloses all relevant personal information.”
Here’s another definition from the Legal Information Institute. Quoting the Uniform Commercial Code. “Good faith, except as otherwise provided in Article 5, means honesty in fact and the observance of reasonable commercial standards of fair dealing.”
Can I break it down into the simplest language I know? Utmost good faith just means that everyone deals with each other the way that they would want to be dealt with. Everyone is honest and does their best to deal fairly. Why is this a big deal in insurance? Let me tell you two stories.
A friend of mine called me the other day. Her husband was leaving for work first thing in the morning and the sun hadn’t come up yet. He felt someone grab him and then some pressure on his neck. The best he could tell, it was a gun and he was robbed. They stole his cash and his car. That’s pretty traumatic. Then my friends called their insurance company. The person that took the first notice of loss was courteous and kind. She was sympathetic and assured them that an adjuster would reach out later in the day. The adjuster didn’t reach out. After about a day and a half, they hadn’t heard from the adjuster, and they didn’t have a rental car (a coverage that they paid for).
Fast forward a few days and the police find the car. They call the company back to let them know and to tell them that they will need it towed and taken to a shop to be looked at. What are they told? No one could be reached until Monday and then only if that person shows up to work. We’re talking about a consumer who, in good faith, bought coverage for damage to their car and they seem to be getting the run around from their insurance company.
As good insurance people, we must suspend judgment until we get all the details of the policy and the loss. I get that, but when I hear about someone who feels like their insurance company is against them, it bothers me. How did it turn out? I’ll have to tell you in a few weeks when all of the details shake out. On to the other story. You may have read this one.
A couple reports property stolen out of their vehicle. It was parked and unattended. They claimed that almost $20,000 worth of property was stolen. Investigators eventually discovered that the described property wasn’t stolen, nor had they ever owned that property. They were arrested for insurance fraud.
Many of these kind of stories tell few details because they come out right after the fraudster was arrested, but with what we know, does that sound like someone acting in utmost good faith? It doesn’t to me, either.
Let’s get all the way to the point. No one benefits if insurance companies assume that insureds aren’t telling the whole truth, or are holding information back. No one benefits if insurance consumers assume that their insurance companies are looking to delay payment, or underpay on claims. Here are some reminders of our obligations to each other to act in good faith.
A consumer’s good faith obligation.
As insurance consumers, we have the obligation to be as honest as we can when we apply for insurance. That means that when you fill out the insurance application, you answer the questions, even when you don’t want to. You might as well, insurance companies can find out if you’ve had accidents or if you’ve had moving violations in your car. They can find out your claim history. By the way, the new insurance apps that say they aren’t asking a lot of questions aren’t asking them because they are data mining for whatever information they can find and if they don’t find enough, or don’t like the information, they’re going to ask later.
As insurance consumers, we have the obligation to be as honest as we can when we file an insurance claim. That means telling the whole truth about what happened, what’s been damaged, and what hasn’t been damaged. Yes, it is a problem if you report a freezer full of stuff, when you know that you only keep $200 worth of food in it at the most. Yes, it is a problem to claim 4 suits when you only own one. Yes, it is a problem to report stolen property that you don’t even own.
An insurance company’s good faith obligation.
As an insurance company, there is an obligation to deal honestly in the underwriting process. Ask questions that you need to properly assess and price the risk. Use that data to make sound underwriting decisions. If there’s something about the risk that you can’t accept as is, you need to handle that immediately, don’t wait for later. Companies have gotten themselves into trouble by waiting until a claim is filed to review a file. Seems like it’s too late then.
As an insurance company, there is an obligation to honestly investigate claims. Let’s not make the claims process any more burdensome than it has to be. Don’t forget that by and large, you’re dealing with people who are having a bad day. It doesn’t matter if they’re filing a property claim, liability claim, auto claim, or life insurance claim. You are dealing with people that are dealing with pain that you may not have faced yourself. How would you want to be treated if your car were stolen? How would you want your parents to be treated if their house was damaged in a hurricane? How would you want to be treated on your worst days?
We understand that there are people who want to game the system. People are looking to enrich themselves at the insurance company’s expense. Insurance companies do delay legitimate payments. There are other players in insurance that act to undermine the system, but I’m not really concerned with them right now. I think that it’s most important to get consumers and companies to act right. I’m sure that we can’t force people to act right because there are law enforcement divisions in most (if not all) states’ insurance departments. I’m sure that we can’t force companies to act right because each state examines companies and how they conduct themselves in the market. I’m also sure that the more we act in good faith toward each other, the better the system will work.