Over indemnity of Fire losses

India’s general insurance business is under a double squeeze of meager premium incomes and mega fire claims outgoes. How it got trapped in such an unenviable position is symbolic of poetic justice.

In the rudimentary stages, indemnity was but the whim of the haughty loss assessor, as his fancy would suggest, that the overawed insurers and the insured alike had to accept like a claim prasad. Though later on, the system had acquired some semblance of balance, yet the irony of inequity, more or less, remained the guiding factor for settling the claims of the small frays that were treated like serfs in the general insurance corridors. More often than not, owing to the insurers’ apathy, the claim processing was tortuous, accompanied by arbitrariness, occasioned by their ignorance or suspicion, and / or both. The hapless insured was hoodwinked to sign on the dotted line of the discharge voucher, or else. Some claim processing officials even went to the extent of maintaining dairies of their misdeeds, of coercive claim reductions, to boast about the savings thus accrued to the company. Just the same, at the same time, it was a red carpet, all the way, for the valued clients, more so when it came to their large losses.

Strangely in those days, the insurers’ penchant for celebrating large losses was indeed appalling in that the normally staid offices tended to get agog with excitement to set the stage with alacrity for hara-kiri. The search for an adept surveyor with a proven record of handling huge claims used to begin in the right earnest, for co-option to aid and abet in the instant case as well. Soon, with fervor to accommodate the claimant’s demands, shared fervently by the ‘blessed’ surveyor, the claim used to get tended on the settlement course with god speed. One may say, ‘whom gods want to destroy they make mad’ but the general insurers’ genius envisioned an underlying wisdom in this apparent madness of obsessive proportions; it was the article of unwavering underwriting faith that publicity of generosity would open up new premium vistas to usher in growth and improve the bottom-line.

However, in due course, this fond hope, based on a false premise, lay shattered as it had to confront the insatiable human greed that it fostered. Sadly thus, this insurance altruism, pitted against the human truism, had in effect pushed the insurers into the clutches of self-serving clientele, out to extract undue returns on the premium paid. If anything, the advent of the consumer forums and more so the opening up of the insurance business for the private sector, in the wake of the Malhotra Committee’s report, made it worse for the public sector general insurers. So as to stall the feared exodus of its harassed clientele to the private shores, the only strategy that could be thought of by these uninformed white-collars was client appeasement. Thus, in a great maneuver of a grand U-turn, client satisfaction, above all else, became the buzzword in the public sector general insurance corridors. Client satisfaction could have been, as well, achieved through timely claim settlement, capping indemnity with a sop or two to propitiate the greedy, if need be,  but then as balancing things had never been the public sector virtue, inevitably, the profound philosophy, in practice, came to be interpreted as a license to appease, to fashion client satisfaction. And that was that. 

Once the hounded turned into the hunter and the harasser became the harassed, the naivety of the knee-jerk reaction for self preservation blew up in the public sector faces. With the “I’ve preferred a claim, so you better cough up” stance, the clientele began to coerce the flummoxed insurers on the specious ground “Never mind the fine print about the liability or lack of it”. What if the claim is even made up? The clients have upped the ante and the insurers had no alternative but to give in, but in the end, perhaps, poetic justice catches up regardless.

But nothing tilted the balance of attrition like managerial expediency to circumvent the constraints of, what may be called, the archaic ‘car-phone’ rule by which only the personnel manning the business line of operations, but not those maintaining the administrative edifice, were entitled to these modern day necessities, attached though with status and prestige in the then developing Indian society. So as to let the teeming new breed of directly recruited administrative officers, who have come of age in the set up, to lay their hands on the car steering and the telephone receiver at home, they were made branch and division heads, so to say, without any screening or training.

However, given that marketing is a different cup of tea; even as most of the new marketing novices turned out to be misfits, yet the managements tasked them to expand the premium base under their control. Given that the public sector has always been averse to the profit centre concept of administration for the fear of being exposed to its managerial inadequacies, these ‘new heads’ in the branches and the divisions found it expedient to  acquiesce as a policy of retention of the client base, making it a case of digging one’s own grave! Thus the only growth these could show was in the form of largesse to the claimants resulting in ever increasing underwriting losses, which coupled with the disproportionate operating expenses, made these enterprises look at the barrel. And that does not make a good business copy, even for the public sector companies! But, yet the delusions remain in the managerial chambers, it would seem so.

It is into this crooked scenario, the private insurers had ventured into, as it turned out, to make it murkier. One hoped that the private players would reach out to the uninsured multitudes of small traders, householders, and such to bring them under the underwriting umbrellas for mutual benefit. But sadly, they chose the easy way out, of poaching the existing clients from the public sector insurance folds through means that were often not above the board. What was worse, in their eagerness to seem apart from the lethargic public sector, when it came to claims settlement, they took to the fast track of claim settlements, oblivious of the high moral hazard of the Indian business ethos and the fact that fire claims are too complex for ready comprehension. If ever they undertake an indemnity audit, they would come across many a hillock and varied mountains of over indemnity, underscored by ‘haste is waste’ adage.

Now the moot point is, are the general insurance underwriters prepared to have a second look, for their own good. For every claimant spoilt with doses of over indemnity, millions of clients are likely to suffer if the bubble bursts. This underlying duty for the larger good should override the narrow desire to please the overbearing, for achieving sectarian ends. It’s fine to treat the customer as god but should the devil itself choose to don god’s garb, expedience lies in exorcising it. Let it be deliberated before the point of no return is reached as the Frankenstein monster devours its masters. As and when the ugly saga comes to an end, on its ruins may be laid the level playing fields of general insurance - for the insurers and insured’s alike.

And that brings to the fore the role of the surveyors and loss assessors in this sordid episode. For the surveyor, it is one thing to handle a large loss, any loss for that matter, and another to hand out largesse. However, as the public sector eyes, long enamored as they are with large losses, failing to discern this vital difference, historically promoted the charlatan surveyors and cold shouldered the professional loss assessors. If anything, the degeneration in the recent past virtually ensured that surveyors donned the role of go betweens, further marginalizing the professional minded amongst them. The question that naturally arises is, how to bring the general insurance sector to the even keel of indemnity by weeding out the over indemnifying surveyors and ushering in a band of equity loss assessors. But there’s a hitch in that the remuneration to the surveyors is directly proportional to the loss assessed by them and though that tends to abet over indemnity, the insurers have turned a blind eye to this debilitating aspect.

Whatever, only true professionals can bring parity to indemnity, but how to spot them in the milieu? Here are some basics to the insurers in first person.

One cannot go by their smooth talk or hard sell, for sure. Knowing their approach and attitude should help, to start with, before character and competence come to be judged. Rudiments of human psychology could provide pointers to the insurers on the way of professional selection. If the chap on the other side of the table sounds ingratiating with you, it may satisfy your ego, but what about your interests? It’s okay with public sector officialdom allowing itself to be played up to, but surely private company managers have a stake in the way things shape up under their command. How those who are prepared to humor you, for an assignment or two, fare with the claimants, with inducements on hand, out to grind their axes on the wheel of over indemnity? It’s anybody’s guess. Isn’t it?

But the professional self-worth operates on a different plane. It seldom crosses the threshold of nice talk. A professional could be the right bet as he is the one, more unlikely, to play ball with the claimant to your detriment. Be wary if the surveyor eulogizes the claimant while briefing you or writes his biography in his survey reports. For sure, he could have allowed himself to be overawed by the claimant and thus would have lost his ability to judge issues objectively. On the other hand, a professional, tries to focus on the job on hand, and has no interest in the personalities associated with it. Thus, his judgment is more likely to be sourced in equanimity.

Beware of the fellow who tends to brief you about the claim in great detail beforehand. You may feel that you are being kept in the claim loop but in effect you are being influenced, willy-nilly, to see things the way he wants you to see them. You had already lost your ability to judge even before the case comes up for your scrutiny. Remember the adage - we learn best by doing, next by reading and worst by listening.

Bu the professional provides you with the best option you have, since you are not expected to carry out the survey yourself, anyway; he gives the picture in writing, for you to read and comprehend it for yourself. That is, if you are prepared to read. In the public sector portals, barring exceptions, it is listening that prevails at the decision making levels, and the survey reports are treated as mere post scripts of the claims! Laziness to go into details costs, even more than, eye for detail that anyway is much scarce. But it is the other way round with the surveyors in the existing order.

It is the paradox of the survey profession that efficiency doesn’t pay that is owing to the linkage of remuneration to the indemnity. The more diligent a surveyor in rationalizing the insured’s claim, the lesser he earns as remuneration for his diligence. Contrarily, owing either to naivety or motive, if the surveyor fails to call he claimant’s bluff, he gets paid all the more for the lack skills or more. It’s another matter that the insurers end up paying through their noses for the unwarranted ways of the surveyors. Thus, for the easy go lucky surveyor, the starting point of the survey is the claim amount projected by the insured, and for the sake of form, it is to be downsized as is imperative in the insurers’ eyes. The charlatans of surveyors, to that end, enter into a half-hearted bargain with highly motivated claimants, out for a kill. If the claimant were unrelenting to yield some ground, the surveyor would go on his knees even, to extract concessions, to accord credibility to his assessment. The merciful gesture of the claimant is then sealed in a “consent letter” to be flaunted by the surveyor as a “certificate of achievement” in the corridors of the gullible underwriters. The insurers, for their part, feel beholden to the surveyor for the “love letter” that bodes well for an easy working day. The spirit of reciprocity ensures that the surveyor gets hailed for having handled the claim well, to be assigned more claims to let him hand out more losses for a hassle free handling for themselves.

However, for the professional surveyor, who doesn’t put the cart before the horse, it is a hard grind all the way. Thus, for professionalism to thrive in the survey filed, the surveyors ought to be paid for the rendered services, on the scale of intricacy and contribution, and not for the largesse bestowed upon the claimants. What distresses even more is that the underwriters keep no track record of the surveyors in exposing the claims of fraudulent nature. Needless to say, fraud, whenever attempted, should be exposed and the claim repudiated regardless of everything. After all, does not fraud negate the very concept of utmost good faith of a contract of insurance? Yes, it does, but suspecting a fraud is different from effectively closing in on that to shut it out is a different ball game.

However, the prevailing norm is for the surveyor to air apprehensions in the insurance corridors that is whenever a claim is beyond his comprehension. The insurers for their part, what with their suspicious having been raised, run for the cover and an investigator would be put in place. Once the detective is in, the surveyor relaxes, and the insurers feel relieved, having passed on the buck. When the investigator finally hands out a clean chit or comes up with no evidence, everyone falls in line, though with their suspicions intact, to reward the fraud. Occasionally, a claim is repudiated on a gut feeling or based on insufficient evidence only to come a cropper in the courts of law.

In the superficial work culture nurtured by lethargy and semi intellect, it doesn’t occur to any that the means to expose frauds are packaged in the insurance policy itself, and that the process to pin the sin is part of a survey. In case of the Fire Policy, for example, conditions No 6 and 8 together provide the necessary leverage to effectively close in on a fraud claim provided the surveyor has the will and the wherewithal for that. Nevertheless, as a rule of thumb, fraud should be writ large on the claim in many a case.

It should be realized that the instinct and the acumen required to repudiate a claim, either in full or part, far outweigh the effort and skills that go into the loss assessment. But the general insurers remain unconcerned about it when it comes to remunerating the surveyors for such repudiations, making it a thankless job for the latter. What is worse, the surveyor is perceived as the one who had spoiled the party and branded as such to be bypassed for further assignments.

Since it has been proved that claim equity is beyond the means of man, only the Fire gods, Agni and Hephaestus, can save the Indian general insurance from over indemnity by not giving cause for loss at all, if not, very scarcely.