2018-06-08 by Admin
Premium undercutting is the
practice where an insurance company secretly offers clients
unrealistically low premiums in order to gain a competitive advantage.
For instance, a broker will solicit
for quotation from an insurance company on behalf of a client but the
insurer go behind the broker to quote a ridiculously low price to win
the business.
According to
www.graphic.com.gh the practice is not only
unethical but criminal, as the NIC may revoke a defaulting insurer’s
licence. The motive of engagement is usually to increase the business
portfolio, but this invariably depletes the insurer’s reserves, making
it difficult for them to claims. As a customer watch out, if for the
first time of insurance , you are offered 50% "No Claim discount".
Why will Insurers engage in premium undercutting?
The following are some of the reasons some insurers undercut premium:
Price Differentiation
Typically,
the insurance landscape in Ghana is that of a Perfect Competition,
where players offer similar products. Pricing then becomes the major
source of differentiation. Indeed, besides the accepted rates, insurers
are also allowed to offer limited discount rates. The challenge,
however, is where some insurers offer rates far and above the acceptable
minimum discount just to keep you in their books
.
Poor underwriting
Another
area worth noting is the poor underwriting skills of the underwriter.
Where the underwriting officer’s expertise falls short of acceptable
standards, they tend to quote lower premiums, without proper profiling
of the risk or following the due diligence to access your profiles well.
Marketing and operational dichotomy
Another
key area is the usual clash between the marketing and operations
departments. Whereas the operations department is concerned about
technically underwriting policies, their counterparts in marketing are
focused on raking in more business, as such, insist on accommodating
certain risks. This often generates huge conflict between the two units;
leading to compromises, which could lead to premium undercutting
because the marketers want to meet their targets.
Leaked quotations
Often
some Insurance Intermediaries who scout the market to obtain premium
quotations for their clients tend to discreetly disclose quotations
obtained from the competition to other prospective insurers in order to
secure much lower quotations. This tie their hands and it will take only
Ethical companies to stick to their principles and values.
Poor claims payment
The
inability of some insurers to honour genuine claims when they fall due
means that they have to undercut premiums to remain afloat, thus
shooting themselves in the shoe.
What do I do as a customer?
It
is therefore imperative for the insuring public not to be enticed by
ridiculously low premium offers, but rather ascertain whether the
offered premium matches the risk cover, as well as the ability of the
insurer to settle claims when they arise.
After all, if the average cost
of fuel in Ghana is GHC 15 per gallon, one will certainly be suspicious
and inquisitorial if a pump station is offering the same gallon for
GHC5!
Source: www.graphic.com.gh
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