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The Actuary The magazine of the Institute & Faculty of Actuaries

Heroes and villains

IN RECENT YEARS, many column inches inThe Actuary have been devoted to theimage of the actuarial profession. Fewhave been used to discuss the image ofthe insurance industry. The industry’simage faces a tough test in the comingmonths and years, in the way it deals withthe World Trade Center disaster and itsconsequences. The cost of insurance willrise as a result of these losses, and there is adanger that this will reinforce aspects of theindustry’s negative image.Insurers should be seen as protectors ofassets, facilitators of enterprise, people whohelp put lives and businesses back togetherwhen things go wrong. A fairly cheesyinterpretation, perhaps, but these were theideas behind the first insurance arrangements. It is sadthat this is not how everyone views the industry today.There are a number of stereotypes about insurancecompanies, largely based on the views of private individualsand formed through their interaction withthose companies which insure their homes and cars.°? Bad value for money When a person pays insurancepremiums year after year and never makes a claim, theperceived value to that person of the insurance policycan be fairly poor.If a person has made a claim, you might think thathe or she should have a more balanced view of thebenefits of the insurance. However, public opinion isoften based on horror stories in the press about companieswho appear to have made every effort to avoidpaying claims. I don’t recall ever seeing a report of asatisfied insurance claimant in the newspaper – it justisn’t newsworthy.°? Greedy insurers In the past few years, motor premiumrates in the UK have increased significantly. Thishas been a result of the unfortunate combination ofstarting from a loss-making position, and suffering aseries of legal changes that have caused claim costs toescalate. However, the average person looking at theirrenewal statement and seeing that their premium hasincreased again will assume that the increases arebecause insurers are just greedy.°? Soft touch for fraudsters Perhaps it is the perceptionthat insurers are greedy and offer bad value for moneythat causes some unscrupulous individuals to believethat exaggerating their claims is acceptable.Most stereotypes are based on (at least) partial truths,so how much of this image of greedy swindlers is thefault of insurers themselves?°ª For motor and household insurance, marketingtends to be based solely on price, rather than thequality of the cover provided. When each companyclaims that they can save you money, it implies thatevery other company is taking you for a ride.°ª Sometimes companies, keen to tackle fraudulentclaims, appear to treat claimants as guilty untilproven innocent, and can look as though they simplydon’t want to pay claims (when in fact all theywant to do is avoid paying for losses that are notcovered).°ª People are often suspicious of huge impersonal companies,and the number of recent insurer mergersacross the world will not have helped to alleviatethis suspicion.It is much easier to identify problems than to suggestways of solving them, and I don’t claim to have comeup with many groundbreaking ideas. However, as aninsurance consumer, I feel that the following common-sense steps would make a difference:°ª explain premium rate rises, to show that they arenot just because companies are greedy;°ª pay claims first, bicker about liability later. Peoplecan be excused for viewing insurance as bad valuewhen they don’t make a claim; it is a shame that itis seen as just another problem when things gowrong;°ª take the lead in preventing claims events occurring,rather than being seen to try to avoid paying forthem when they do occur. For example, the industrycould participate to a greater degree in initiativesto reduce crime, prevent flooding, improve roads,and so on.More generally, when disasters occur, the insurancecommunity has the opportunity to take centre stageand show that it is a vital industry upon which theglobal economy depends, and from which it benefits.