Dunning-Kruger Effect Definition, Examples, & Facts

Marketopedia / Personal Finance / Dunning-Kruger Effect Definition, Examples, & Facts

The Dunning–Kruger effect refers to a cognitive bias wherein people may display an unwarranted belief in their own skills, even when they possess minimal knowledge on that subject. We’ve all encountered someone who talks about cricket with an air of authority yet reveals themselves to have little understanding of the sport. It is tempting to put them in their place, yet it is much better simply to ignore them.

If we don’t act, disastrous results could follow for all involved in this industry. The risks of the insurance business can be quite great, and it is essential to intervene when customers choose the wrong way. There have been several instances of people planning a way around the insurer in case they had to.

Let me offer an example to demonstrate this.

If you have been diagnosed with diabetes, a comprehensive plan may involve insurers conducting an independent evaluation of the severity of the condition. Upon completion of the necessary checks, insurers may set certain restrictions.

To begin with, insurance companies are likely to apply a waiting period for pre-existing conditions. This is typically two to four years during which they won’t offer coverage related to the pre-existing condition – in this instance, diabetes. In addition, it is common for them to include an extra fee or loading charge to balance out the risk associated with granting insurance to diabetic patients.

You may end up paying a higher premium for the same plan that healthy people your age pay. In severe cases, loading charges could even be as high as 150%, particularly when an individual has multiple medical conditions.

This knowledge arms you with the tools to try and outsmart the insurer instead. Alternatively, you might consider it wise not to make any statements referring to pre-existing conditions from the start.

If they do not require you to have a blood sugar test done, they will not be able to know what is going on. They won’t investigate if you’re not forthcoming about anything, particularly when you’re young.

You could attempt to manipulate the insurance company for a beneficial arrangement. However, this concept has numerous faults, as these companies have been in the industry for several years.

They are well-versed in the dodgy tactics used by a certain few hoping to exploit this agreement. They might not confront you when you buy something, but they will refuse your request during a claim, so let me demonstrate with another example.

Imagine being diagnosed with a severe retinopathy after managing diabetes for eight years. The blood vessels in your eyes are damaged and call for surgery right away. Fortunately, you recently got health insurance – a blessing you never expected since you didn’t mention any medical history when acquiring the policy.

You will be faced with the consequences of your actions soon enough.

When making a claim, insurance companies will thoroughly examine your medical records. These can include discharge summaries and several other documents as they seek to determine if you have any history of diabetes.

It’s likely that your claim’s fate is already sealed if they discover you have retinopathy linked to diabetes, especially once they look at your medical record. Even if you contest this decision and bring the case to the regulator, it’s likely that their decision will remain unchanged.

You could opt to take a gamble in going to court, but the chances of success are slim. Time and patience will not be on your side, as it is likely to cost more than the insurance plan itself. This way, you’ll just be pouring more money into a losing battle, something you wouldn’t want to risk.

What I mean to say is this — When you make those declarations, and insurance companies accept them, they know what they’re doing. They aren’t being taken in; rather, they are being wise.

At hospitalisation, most minor claims can be easily detected, and this is beneficial for insurance companies. Although you pay out a premium, they may decline to settle any claim if even the minutest inconsistency is identified.

Customers often call out insurance companies for excessively avoiding payment of claims, even when people are transparent with what they declare. For example, if someone is hospitalised and finds out that they had a pre-existing condition of which they were unaware, then the insurer must honour the claim.

If you make a claim shortly after purchasing your policy, the insurer may be suspicious. Moreover, if your medical history supports the possibility that you deliberately did not disclose a pre-existing condition, they can deny the claim altogether.

You can’t avoid this situation. According to the current regulations, a claim becomes indisputable after eight years of paying your premiums. Until then, there’s always potential for argument, and the best you can do is attempt to enhance your results.

What is the process of doing it?

It is crucial that you declare everything, no matter how minor it may seem. Many people are not intentionally hiding anything, they just don’t believe the condition to be pertinent. For instance, someone managing their hypertension with medicine thinks that this is not so important. However, it still applies as a pre-existing condition. Make sure you disclose all information in the correct manner.

It doesn’t matter whether you see your condition as harmless or not; if you are taking medication, have recent surgery, or have a genetic disorder, it is deemed a pre-existing condition. Even if you had a debilitating illness some time ago which has since been cured, that could still be seen as pre-existing, depending on the timeline.

All in all, transparency regarding your medical condition would be enormously beneficial for you. Although the waiting period and extra cost may be unpleasant, it won’t compare to having your claim denied.

The regulator has standardised the definition of Pre-Existing Disease to clear up any confusion. The guidelines state that it is any condition, ailment or injury for which there were indications, and that has been medically treated or diagnosed within the last 48 months before policy commencement and renewal.