Background: An insurance policy is a contract between the customer (insured) and the insurance company (insurer) and Uberrimae Fides is the first rule of insurance which states that both the parties need to share all the relevant information with each other before the commencement of the contract. Natarajan Ramanathan in his previous article shared a list of things you should remember while purchasing a health insurance policy. In this article he explains what is Uberrimae Fides and its relation to the moment of truth and how are these two related in insurance companies.

What is Uberrimae Fidei and why it is important in the context of insurance and especially general insurance?

Uberrimae Fidei or ‘utmost good faith’ is one of the founding principles upon which an insurance contract is based.  Any personal or commercial contract between two parties has the element of good faith involved but the underlying principle is ‘caveat emptor’ (let the buyer beware). But, in general insurance, this is upgraded to ‘utmost good faith’ and let’s see why it is so.

In general insurance industry, the ‘goods’ that are sold, unlike in other industries are intangible.  What is being essentially sold is nothing but a ‘promise’ that will be kept during the happening of a certain event.  The event, in insurance industry terminology is called ‘pure risk’. Pure risk is nothing but should an event happen or occur, then there is only one outcome – accident(s) or damage(s) that lead to financial loss.

Let us consider two scenarios. Ravi is a person who wants to purchase a general insurance from an insurance company.

Perspective 1: Typically, the company depends on Ravi to share all the information as requested by them to price the risk and provide him with a plan. The information requested is important for the insurance company for making of the policy. Now the information provided by Ravi should be correct as the company solely relies on that. So the company expects Ravi to act in ‘utmost good faith.’

Perspective 2: Similarly, when it comes to Ravi, he expects that the insurance company will reciprocate in the same manner by:

(i) By providing all the necessary information based on which Ravi will take an informed decision.

(ii) Providing all the terms and conditions (T&C) of the policy and

(iii) By practicing fair conduct in all dealings with him (It must be understood that the ‘terms and conditions’ here is inclusive of the warranties, clauses and terms and conditions that are usually mentioned in the policy). And as only the insurer knows these ‘terms and conditions’ ,Ravi expects the insurance company  to act in ‘utmost good faith’.

Thus in both the cases you can see that the relationship is based on trust.

Uberrimae Fidei or ‘utmost good faith’ is one of the founding principles upon which an insurance contract is based.This is the reason insurers are asked time and again to look beyond just cost savings and focus more on customer satisfaction. 

But what has Uberrimae Fidei and the moment of truth got to do with each other? 

Moment of truth, as defined by Jan Carlzon, Ex-CEO of SAS – Scandinavian Airlines, are the moments when “the various points at which employees of the airline came in contact with airline customers.” Similarly, in the case of General Insurance industry, the moments of truth are when customers come into contact with the Insurer’s employees. 

The following is an excerpt of an interview with Jan Carlzon, ex-CEO of SAS: 

Jan Carlzon was asked, what was it that caused him to observe that this moment of truth— the interactions between the company and its customers —was so critical and focus so much energy on that idea?

In his response Jan Carlzon said, “If you follow my thinking, you understand that what I say, actually, is that the assets that you present on your balance sheet have no real value as long as they are not filled up with customers. I mean, aircraft, itself, only causes problems for a company because it's a high investment; you have to depreciate the investment; you have to pay interest to the bank; and all those hurt your profit and loss statement. But the moment you have customers entering into those aircrafts paying for being there then, also, the aircraft gets the value. In other words, the real value a company has are those customers who were so satisfied with what they got last time, they used the company and their services. And those people working in the company were so motivated that they, again, would perform in front of the customers in such a way that they would come back even the second and the third time.”

When we translate this in insurance industry, we see that it is the insurer’s job, during any interaction with the customer, is to ensure that they are provided with the correct and relevant information.  The customers must be told about the implications of the ‘conditions’. They must be told not just about the warranties but also about:

1. Why the warranties are placed and

2. The implications of breaking the warranty.  On the other side, so to say, the clients must know their business very well so that they can ask the right and relevant questions to the insurance company. 

This is the reason insurers are asked time and again to look beyond just cost savings and focus more on customer satisfaction. If the general insurer does not take care in this regard, then the implications will come alive in the event of a claim when the insured pays a price for the carelessness on the part of the insurer.  This could put the insurer in an awkward spot and the insurer would not be able to face the ‘moment of truth’.

The bottom line of this article is, ‘a good experience is necessary everywhere.’ Additionally, with the penetration of digital channels like social media, experience of a customer matters all the more. So in order to seize this ‘moment of truth’ opportunity, insurers need to inject trust in the minds of their customers and provide them with a seamless customer experience, proving Uberrimae Fidei and the moment of truth are extremely vital in an insurance company.

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