Low quality products: bad for business

Darren Weekes, Head of Broker at DAS, looks at why low quality legal expenses insurance products could prove bad for business…

If you give all the legal expenses insurance (LEI) products out there a cursory glance, they appear to be pretty much the same. Look closer.

Careful scrutiny of the range of products available in the legal expenses insurance market will reveal stark differences. Put simply, there are some markedly low quality products out there. Of course, you might argue that this is a rather predictable thing for me to say but the fact remains that brokers have LEI facilities with high declinature rates and far too many dissatisfied customers.

This is why the issue is bad for business.

How do they differ?

In the case of supposedly comparable products, the types of legal dispute covered will look similar, the policy limits will look the same, and the variants on excesses or waiting periods will also be clear. However the difference between a ‘good’ policy  which I’d define as being a suitable policy which will potentially help resolve a customer’s legal problem  and a policy that will actually leave them with no help at all, can only be confirmed by a thorough review of the policies terms and conditions.

“Isn’t that the same for most goods and services?” I hear you cry. Well yes, but in this context the problem is that the poor quality of the product is often only revealed when the customer makes a claim. This is when the customers realises that the policy they were sold was a waste of money and ends up dissatisfied. For brokers recommending these products this is simply bad for business.

What does a good product mean?

The key issue for me is whether the product will really assist the customer in resolving their problem. A legal dispute has to be among the most stressful situations a consumer or business can ever face. If they purchase a legal expenses insurance policy they should be given a clear understanding of when and how the policy will help them when they need it   and when it will not. Customers shouldn’t have their expectations dashed by terms and conditions that were not highlighted at the point of purchase.

How do these products fail consumers?

There is one consistent theme between what makes a LEI product good or poor quality. In some policies the issue is referred to as ‘proportional costs’, in others it is less explicit but comes in the guise of a condition whereby policy cover stops if it is viewed as ‘uneconomical’ to continue legal action.

What does this mean to the customer?

In practical terms this means a customer may have a legal dispute matching one of the types covered by the policy. They report the claim and a solicitor is appointed, who considers the facts, and decides whether the case is more likely than not to succeed.

All OK so far. If it passes that assessment the case will then progress until the solicitor assesses that it will cost the LEI provider more in legal fees than the customer can possibly benefit from compensation – even if they go on to win their case. So while the customer may have a perfectly strong case which qualifies for cover, their insurance provider will withdraw cover because the cost of getting justice is too expensive.

Don’t all products have these restrictions?

No. A good product will not assess the cost of getting justice, it can’t and that’s just not fair. A good product will assess the prospects of succeeding and if the opinion is the customer is more likely to win than lose, then the appointed solicitor will progress the matter through to conclusion that conclusion being justice for the customer and achieving the redress or compensation they are legally entitled to.

Do consumers understand this?

My concern is no, they don’t. This key ‘feature’ of poor products isn’t being highlighted to customers. I doubt the LEI providers are even highlighting this to the brokers signing up and agreeing to sell these products. But in reality in most circumstances customers are not being offered a choice.

The majority of brokers only offer one LEI product, which means customers have no option. Sadly when brokers are deciding which LEI products to promote the key decision making factor all too often is the net price of the product and the commission margin. The detail of how the customer will benefit – or otherwise   is not the key issue, and it really should be.

So brokers are just looking at profit?

No, that’s not quite fair. I think the reality is that most brokers don’t appreciate this hidden issue, and only realise when the product fails to provide cover for the customer when the expectation was that it would.

Personally I just don’t think other LEI providers are being clear enough on the issue, and we shouldn’t forget that on many occasions the LEI cover is already included in the main home or commercial insurance policy. This then comes down to the core product insurers making bad choices on the quality of the LEI cover they include.

Are consumers not getting a bargain?

This is absolutely not the case. We all know that insurance is typically brought with price being the leading decision making factor. However who would want to waste their money a policy that only helps if it turns out it’s financially favourable for the insurer to support it? I wouldn’t.

What can brokers do?

Offering choice would be one option. Alternatively brokers need to ask themselves whether they really understand the LEI products they are recommending, and if they know how to identify a ‘good’ product, and to check for these onerous conditions that can disadvantage their customers.

Brokers also need to understand whether the LEI sections embedded in the core insurance products themselves give them the same or similar hidden risks.

Most of all, brokers need to challenge themselves on choosing the cheapest product ahead of the best one available. Are they are prepared to put their customers at risk through a poor choice of LEI product, especially when you consider that the difference in price between a ‘good’ LEI product and a potentially useless one is often modest.

Ultimately it’s all about awareness and education, and those of us who specialise in and provide LEI have a duty to help the rest of the industry understand this.