This page has nothing to do with TAL insurance. Let me tell you why insurance is a con

So Tauel is a strage word and not one that I hear a lot. Imagine my surprise when I heard this TVC for TAL :

Nothing not to love here, right? I dig the Sia cover, the diversity of ‘Australianness’ represented, some beautiful shots and I can also see the clever messaging of starting with young people and finishing with the target market of older people. And then there’s hearing ‘Tauel’ as a brand… sort of intoxicating.

But I HATE it; because if there’s one industry I struggle to respect, it is insurance. And in this post I’m hoping to explain why.

First, a confession. I’ve actually had a lot of really bad experience with insurance companies, so I am in some sense prejudiced by my own experiences. I have repeatedly been in situations where insurance companies have done everything possible to avoid paying out on claims and employed guys in suits to come up with reasons not to pay, or to chase innocent parties up for the costs they’ve incurred.

I’ll mention a few incidents so you get the idea. When I was 18 a mate accidentally caused me to have an accident that totalled my insured car to the value of $1600, the insurance company was going to charge me $800 excess for being young, as well as the loss of my no-claim bonus; and then go after my mate legally to make him pay the full $1600. So just to recap – because they intended to recoup the money it took to fix the car PLUS my $800 excess, they stood to make $800 out of my honest reporting of what was an accident. We subsequently cancelled the claim and my mate and I sorted it out between us.

Another example was when the communal plumbing in a flat complex we were in flooded and caused damage to carpets and flooring in the adjacent rooms. The building insurer refused to pay to repair the flooring based upon the argument that the damage may have pre-existed the flood because there were cracks in some of the bathroom tiles – and couldn’t be attributed to the flooding caused by the burst communal plubming. There was, of course, no flooring damage before the flooding but the insurance company stood by the claim that if we couldn’t prove that there was previously no damage then we couldn’t prove that the damage was the result of the burst plumbing. So they maintained the position that we had tolerated a wet floor and seeping walls for however many months, just waiting for a colossal failure of the plumbing system, which we then used as convenient excuse to ask them to repair a separate problem which just coincidentally looked like being caused by the plumbing issue. That is a ludicrous claim and an ethical operation would stump up the money for repair clearly caused by the plumbing issue.

Finally, when my 1971 VW Beetle (which was in my family for 25 years) was totalled by a driver using their mobile phone, the driver’s insurance company gave me $600 compensation for the written off vehicle. When I complained that sum no way recognised the value of the car I was told that the age of the car depreciated its value… the car was almost 40 years old at that point and almost, but not quite, in the ‘vintage’ range – but no one would really claim that a 40 year old Beetle is depreciated in value because of its age. $600 was not enough to repair the vehicle and I had no money at that point in my life, so I lost my beautiful little car I’d had for 15 years.

All of these incidents have encouraged me to loathe insurance. I see it as a corrupt industry that ought to be avoided at all costs; even those insurers who ‘aren’t very insurancy’.

I also think that it doesn’t make sense financially to use insurance. Let me explain why. If you are running an insurance business then the only way you can make money is to charge your customers significantly more than the value you’re actually ‘risking’. That is, any insurance premium has to equal the net cost of insurance claims PLUS the cost of employing people to handle the claims, PLUS the cost of administration and management, PLUS the cost of advertising your company PLUS the profit your company needs to make.

So, in all cases, if you’re wealthy enough to absorb the financial risks associated with your lifestyle, then you’re better off without insurance. If you can ride out the bad years, overall, you’ll pay less; among other things that’s just less administration, marketing, management and shareholder profit you’re paying for. I understand that not everyone is that wealthy but that makes insurance an even more unfair imposition upon those who are already financially precarious.

Insurers are obligated to their shareholders to do everything possible to ensure that their clients don’t ‘beat the system’- meaning they will try to ensure that every customer pays far more in premiums and excess than they ever receive from the insurer. That means jacking up premiums at the first sign of an added risk (the person is infirm, young, old etc), and avoiding paying claims wherever possible. It also means that, at the lower ends of the spectrum, there are peculiar advantages to making people feel precarious, threatened and isolated in order to motivate them to take out insurance. It’s sort of a self reinforcing system of creating bad karma in exchange for money.

So yeah, I don’t love insurance. I now avoid any form of insurance I can and generally only hold it where it is compulsory. My family has swallowed the pill of ‘if you can afford private health insurance then you should take it out because it places less pressure on medicare. But this bothers me because of the inefficiency created through having multiple private insurers. Since the larger your customer base becomes you would lower your exposure to peculiar risks, the closer your premiums can get to a median value and the fairer your insurance would be. Similarly, the larger your customer base the more efficient your management and administration could be. Similarly if there were just one insurer, there would be no need for advertising expenditure. In short – if there is just one insurer (say medicare, for instance) insurance premiums would be almost entirely used for their purpose – to pay for the claims made against the insurance – instead of used to pay for marketing the need for further insurance, or creating a new brand to appeal to a safer insurance market.

Finally, I think that the idea of spending money to protect the material wealth we already have is a form of intense conservatism which seeks to preserve the worst aspects of our current existence (commodity fetishism, reification, materialism) and inhibits some of the best aspects (challenge, responsibility, compassion). There are reasons to collectively defray the impact of catastrophe – but using profit oriented companies to coordinate that is a misstep. And yeah, I’ve had a lot of bad experiences with insurance companies. So I’m certainly not endorsing TAL.

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