Criticism Of Insurance
Joseph Kenny
Joseph Kenny
Insurance policies work by taking premiums from customers in
exchange for baring the risk of certain costly events
occurring. For example, if there is one fire in your town each
month, everyone could just sit tight and hope their house
doesn't burn down next, or everyone could pitch in and pay an
insurance premium each month and this is then used to rebuild
the house that burns down. Very simply this is how insurance
works. It is a method of spreading a risk over a far wider
area, so that it will not be as devastating as if it was
concentrated solely on the person who experiences the loss.
Exclusion Clauses
There are a few problems with this however and they attract
much criticism. One criticism is that by taking on the risk for
people, insurance makes people take greater risks than they
otherwise would. For example, if you know your home contents
are insured against burglary, then you may not be as careful
about locking the doors and windows every time you leave the
house. Or if your bike is insured, you may not bother to lock
it as much as if it wasn't insured. In the insurance industry,
this problem is known as the moral hazard.
Insurance companies protect themselves against this by
inserting exclusion clauses into their contracts, which remove
their obligation to pay out if the insured performs or fails to
perform certain stated actions. They might for instance require
that you fit smoke detectors, or use good locks on your doors,
or other things that will reduce the risk of the insured
against event occurring.
Too Complex
There are also certain risks that you are not allowed to insure
against in most countries. This is first of all because it would
be too difficult for the insurance companies to quantify, but
mostly it's because they are risks that governments want the
person at risk to bare himself or herself. They generally apply
to multinational companies.
There is also the criticism that insurance policies are far too
complex for the vast majority of consumers to understand. It is
simply unreasonable to expect the customer to understand
lengthy documents that have been drafted by not one, but
usually teams of specialised lawyers. This can lead to
consumers being misled or buying insurance policies on
unfavourable terms. To get around this, most countries regulate
the content of insurance contracts to ensure that they remain
fair to consumers.
There is also the option of using the services of an insurance
broker to shop the market for you.
About The Author: Joseph Kenny is the webmaster of the
insurance site http://www.insure121.com/ where you will find
information, news and links to the leading providers of home
insurance in the UK.
exchange for baring the risk of certain costly events
occurring. For example, if there is one fire in your town each
month, everyone could just sit tight and hope their house
doesn't burn down next, or everyone could pitch in and pay an
insurance premium each month and this is then used to rebuild
the house that burns down. Very simply this is how insurance
works. It is a method of spreading a risk over a far wider
area, so that it will not be as devastating as if it was
concentrated solely on the person who experiences the loss.
Exclusion Clauses
There are a few problems with this however and they attract
much criticism. One criticism is that by taking on the risk for
people, insurance makes people take greater risks than they
otherwise would. For example, if you know your home contents
are insured against burglary, then you may not be as careful
about locking the doors and windows every time you leave the
house. Or if your bike is insured, you may not bother to lock
it as much as if it wasn't insured. In the insurance industry,
this problem is known as the moral hazard.
Insurance companies protect themselves against this by
inserting exclusion clauses into their contracts, which remove
their obligation to pay out if the insured performs or fails to
perform certain stated actions. They might for instance require
that you fit smoke detectors, or use good locks on your doors,
or other things that will reduce the risk of the insured
against event occurring.
Too Complex
There are also certain risks that you are not allowed to insure
against in most countries. This is first of all because it would
be too difficult for the insurance companies to quantify, but
mostly it's because they are risks that governments want the
person at risk to bare himself or herself. They generally apply
to multinational companies.
There is also the criticism that insurance policies are far too
complex for the vast majority of consumers to understand. It is
simply unreasonable to expect the customer to understand
lengthy documents that have been drafted by not one, but
usually teams of specialised lawyers. This can lead to
consumers being misled or buying insurance policies on
unfavourable terms. To get around this, most countries regulate
the content of insurance contracts to ensure that they remain
fair to consumers.
There is also the option of using the services of an insurance
broker to shop the market for you.
About The Author: Joseph Kenny is the webmaster of the
insurance site http://www.insure121.com/ where you will find
information, news and links to the leading providers of home
insurance in the UK.
