Author: Howard Candage
Do you believe there has been an industry shift towards short-term profits at the expense of long-term stability and service? I am writing a book on the subject, and want to hear from agents willing to share their perspectives and ideas. In what ways do you see our industry letting consumers down, and losing their faith? Are there instances in which you, the agent, have taken steps personally to rectify situations in which your customers were not made whole as they and you expected?
During the last three decades, much of the insurance industry has moved away from its original mission, which old texts spelled out when they defined insurance as "a social device whereby the losses of a few are borne by the contributions of many." This movement has been accompanied by a mix of developments, both positive and negative, which include overall expense-ratio cuts, decreases in head count, advances in automation, and other strategic moves that have restructured the operation of the industry and its overall expense loadings.
Insurers have not made this move deliberately or even consciously. It has been brought about by a combination of circumstances, including, significantly, the conversion of a number of private insurance companies into publicly-owned entities. Other conditions weighing in are the growing magnitude of the numbers, both in terms of premiums and risks, consolidation of the industry, and the restructuring of the industry to use both primary risk bearers and, increasingly, bigger and bigger reinsurers.
In some important ways, the demands of a public company run counter to the mission of an insurance company. Pressure from shareholders to produce quarterly profits, for example, has created an environment that encourages publicly owned insurers to slash their loss ratios. In some instances, this is done by fighting legitimate claims. This is not to say that insurers set out to deny all claims, but that they often do impose narrowing definitions of what they will cover, and in which cases.
Pressure to produce profit has also influenced rates. This pressure has caused the insurance industry to narrow the scope of what it is willing to insure, as exposures have expanded under increased external economic pressure. New exclusions appear in policies or underwriters narrow their appetite due to these expansions. EPLI, Pollution, escalating property values and increased utilization of liability insurance are creating affordability issues.
None of this is to say that profit is the problem. The problem is profiteering, or making additional profits at the expense of the customer. When insurers profiteer, customers lose, and indirectly, agents lose. What can we as an industry do to change our structure so that shareholders are not the only winners?
Today's definition of insurance seems to omit its role as a social device in that we're no longer taking collective care of the individual who is insured, or of the insurance mechanism itself. We've taken our customers' money and given them a promise, but we've done little to assist them in preventing loss, or to execute our promise when a loss occurs. We, as agents, earn a commission whether we perform any risk management for the customer or not. You could say that the system is breaking down. We need to learn that the consumer pays the premium and deserves to know in advance what issues remain in their exposures after the purchase of insurance coverage.
We can, and should, do more front-end work to improve the way the product is sold. We need to take a more active role in risk-management to help customers prevent and avoid losses. We also need to communicate more closely with our carriers to find ways to change conditions that negatively impact consumers before “solutions” are imposed upon us collectively by state and/or federal mandate.
The recent revelations in super storm Sandy support my point, not in an ethical way but in a moral way. If the allegations of changes in the engineering reports are substantiated, it is a dark day in the insurance industry. We need to maintain our awareness and intervene to make sure the insurers who are issuing our insureds written promises, live up to the promises made in the contracts. This takes moral courage coupled with clear knowledge and thinking.
This is just one more example of the need for an agent in the process of insuring the public, both pre loss and post loss.
I would welcome comment and sharing information on issues of ethics and our industry. Pleases send informed observations to me if you wish.
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IMPORTANT. The views expressed in articles written by our faculty members and others do not necessarily reflect the views of IIABA.
Last Updated: March 6, 2015