Archive for May 2011

Mobile Phone Insurance – The Future’s Bright, The Future’s Insured

Technology.  A source of wonder and frustration in equal measures.

A shimmering, sophisticated thread woven intricately into the tapestry of our 21st century world.
It certainly makes one feel old to think that some of my favorite, futuristic works of science fiction are now set in the past.

The space odyssey was ten years ago, the evil Arnie robot sent from the future arrived sixteen years ago (and is now an American Politician!?!), and 1984 happened, well in 1984.

Only nine years to go and we’ll all be chowing down on some Soylent Green.

Yes ladies and gentlemen, the future and all its wondrous, technological gadgetry has well and truly arrived and what better example of modern technology than the mobile phone.
It seems like only yesterday when the mobile phone first became common place, yet it was indeed over a decade ago that we first all became addicted to playing snake on our green dot matrix phones. How out dated those phones of the late nineties now seem compared to today’s magical smart phones?

But try to cast your mind back just that little bit further, to those dark days before we all went mobile.
Just how on earth did we get by?
The mobile phone has truly revolutionized the way we live our lives, giving us instant communications and access to all of our contacts wherever we are. The mobile phone has become so central to modern living it seems crazy to think of getting by without one. So with an item this essential, can we really afford not to take out mobile phone insurance?

Well, as with all things important in our lives we need to have some form of cover in case the unthinkable happens and our phone is lost, broken or stolen.

mobile phone insurance

What type of cover however is the important question and as with any decision on insurance you should consider your own unique situation when choosing how best to insure yourself.
The first question you need to ask yourself is; are you the type of person that is likely to lose a phone?

Is this your sixth handset in five months?

Are you the type of person that seems to have tiny mini black holes that follow you around which swallow up your keys, phone and wallet etc? Or are you Mr. (or Mrs.) Organized, knowing where everything is at all times always?

If like me you fall into the former category then I suggest you need an insurance policy. If like my wife you fall into the latter category, then paying out an additional premium may not be necessary.

One option for you organized types is self insurance, where rather than paying a premium to an insurer you pay the same amount into a high interest savings account. This way if you do lose your phone then the money is there ready to buy a new handset. If you don’t, then at the end of each year you have a little bonus which you certainly wouldn’t get from your insurer.
Of course if someone has stolen your phone then they are likely to use it. Not a problem if you are on Pay As You Go but a potential nightmare if you are on a contract and one which self insurance does really allow for. As a preventative measure I would suggest it may be worth asking your provider to bar international calls from your phone as a precaution against this, but it is still a risk that needs to be considered in choosing you insurance options.
If you are like me and are reasonably likely to lose your phone at some point, then a traditional insurance policy is the way to go. However, before you commit yourself to a hefty insurance policy with your mobile provider – shop around.

The salesman that sold you your phone is likely to know a hell of a lot about phones but that certainly doesn’t mean he knows diddly squat about insurance (except that he probably gets more commission if you buy it.) so don’t let him push you into it.
In many instances your existing home insurance may well provide you with cover for you mobile phone even when you are away from home. Also many modern bank accounts are moving away from an interest model to a fee based model and to justify the introduction of these fees extras such as mobile phone insurance are included within the package. In fact it is now possible to get travel insurance, mobile phone insurance and AA membership included within a bank account.

If you are not covered by your existing home insurance or a bank account then it is worth exploring specialist gadget insurance providers such as iphone insurance . You can get decent cover for as little as about £2.50 a month these days. The insurance comparison websites also have a mobile insurance comparison section on their site as well and this would be a good place to start.
Now, where did I put my phone?

How Insurance Shares Risk Across The Population And Aims For Fair Premiums

Insurance Blog often gets unusual requests, more proof that Insurance is not grey and boring, the latest being particularly unusual so we thought we’d rise to the challenge.

A mature student friend of ours was struggling with his first year accountancy exams when asked to write an essay on the following, so he thought he’d approach us for some answers and help writing his assignment.

1.Explain how Insurance shares risk across the population?
2.What is a fair insurance premium?
3.How can adverse selection prevent Insurance being available at a fair premium?
4.What strategies do insurance companies follow to reduce the problem of adverse selection?

So we farmed it out to our technical expert Dave Healey and this is what he came up with.

The Primary Functions Of Insurance As A Service Industry

By Dave Healey

There are three primary functions of Insurance which determine how Insurance companies operate and how the public interacts with these companies.

The first is as a risk transfer mechanism, whereby the individual or business can shift some of the uncertainty of life onto the shoulders of others. In return for a known premium, usually a very small amount compared to the potential loss, the cost of that loss can be transferred to an insurance company. Without Insurance there would be a great deal of uncertainty experienced by both the individual and the enterprise, not only as to how and whether a loss would occur, but also to the extent and size of the potential loss.

The second primary function is the establishment of the common pool. The Insured’s premium is received by the Insurer into a fund or pool for that type of risk, and the claims of those suffering losses are paid out this pool. Applying Bernoulli’s ‘Law of Large Numbers’, because of the large number of clients that any particular risk fund or pool will have, Insurance companies can predict with high accuracy the amount of claims or losses that might be suffered over a period of time. The will be some variations in losses over different years and Insurance companies include an element of premium to build up a reserve, to pay for additional losses in bad or catastrophic years. Therefore in principle, subject to the limitations of the type of cover bought, the client should not have to pay additional premiums into the common fund after a loss or claim.

The third primary function of Insurance is to provide fair and equitable premiums. Assuming that a risk transfer mechanism has been set up through a common fund or pool, the contributions paid into the fund should be fair to all parties participating. Each party wishing to insure and paying into the fund will bring with it varying degrees of risk. To avoid adverse selection and provide equitable premiums each risk is broken down into various components and rating factors that can be priced individually on a statistical scale of probability determined by Actuaries. Therefore those who present the greater statistical risk will pay more into the common fund for the same cover, when their individual premiums are calculated.

Insurance companies employ underwriters to reduce the problem of adverse selection and protect the fund. The underwriters will determine parameters of the hazard and value of a risk that is acceptable for the fund, and decline risks that fall outside these parameters. In fixing a fair level of premium they must also take into account the contributions made by others into the common fund and price accordingly.

Underwriters and insurance companies will employ many techniques to deter or price adverse selection out of the risk pool. These typically include exclusions to cover in the form of policy wordings and additional conditional clauses, exempting the risk under certain conditions. They will employ all types of mechanisms and devices to install fear into the population to increase the size of the risk pool and attract the niche or sector of the market that they are aiming for. For example large marketing campaigns aimed at the ‘safe’ sector e.g. women drivers who are statistically less likely to claim. On the Internet, Insurance companies employ automated underwriting that excludes cover to everything that does not fit the desired risk pool parameters.

Ultimately the Government can in certain cases decide the size of the risk pool through leglislation and compulsory insurance as is the case for car insurance where it is illegal to drive without cover and business insurance where it is illegal to trade without liability insurance cover.

Insurance companies can also take further risk transfer from the insurer to a reinsurer (reinsurance) laying of some of their exposure as a mechanism for adverse risk control.

We originally published the Article at:

Well there’s obviously a lot more to write on this subject so if some of you FCII fellows out there who read this blog  wish to contribute, feel free to leave your comments on the questions!

Payment Protection Insurance Claims cost Lloyds Bank £3.2 Billion

On of the major players in the Credit Crunch which had to be bailed out by the UK taxpayer and contributed to the current deficit  – Lloyds Banking Group – has announced today that it has set aside a £3.2bn provision for claims from clients that they were mis-sold payment protection insurance (PPI), which accounts for the bulk of the £3.7 billion loss it has reported.

Lloyds Bank  has decided to settle all the PPI misselling claims after UK banks lost a High court judicial review called by Barclays and others over PPI  claims compensation last month.

Payment protection insurance also known as ASU, Income Protection Insurance and Mortgage Protection Insurance,  was sold by the large banking corporations at inflated rates to cover in particular credit cards, personal loans and mortgage repayments  if income ceases or falls because of accident sickness or unemployment.

Since 2009 thousands of Uk complainants have received compensation because their policies were mis-sold. Missold, because they were sold policies that were either not explained to them, did not cover them because of certain exclusions or in the majority of cases was only taken out for fear of not obtaining the loan.

The Financial Services Authority (FSA) published guidelines last year which said banks should contact all PPI past policyholders to ask them to complain if they believed they had been mis-sold PPI.

Insurance Blog is pleased that the UK Government owned bank is leading the way on payment protection insurance compensation claims. The other banks will now have to follow suit.

It is only fitting that the big banks who were the main offenders in the misselling of PPI should be made to pay and not the hard pressed insurance industry, and particularly the Insurance Brokers, that has so far footed most of the bill with ridiculously high FSA fees, which in many cases has created barriers to entry for the UK Financial Services market.

On a footnote if the Bank of England keeps Interest Rates at the same level today, it will be a good day for the UK Public.