Updated:: who actually benefits from buying “risk protection”?
Thursday, 23 August, 2012 Leave a comment
I attended an interesting seminar last evening [June 2011], arranged by the Institute of Directors and sponsored by Zurich. Interestingly these organisations also provided (by some margin) the most interesting speakers. The Seminar was entitled “The Reality of Managing Risk”.
“Easy” conclusions: the industry prefers to profit from peddling “faux certainty” (in the form of risk modelling) than acknowledge and prepare its customers and shareholders for the REALITY of uncertainty; Managing, even influencing, risk is a minefield – but is made worse when, conventional RM purports to know and be able to “manage” more than it, in reality, can! Insurance industry leaders of the prevailing culture have established that THEY are better served by achieving short-term goals in relation to price, GWP, growth and market share, than by pursuing long term strategies based upon underwriting risk for profit, rewarding a responsible approach to “business resilience” and building stable – sustainable – transparent – relationships.
Not news to anyone who has given thought to the nature and implications of the linear-perspectives, flawed theories, practices and culture that are a blight on (business) life in the Digital Age.
Another fact is that, if/when organisations fall foul of legislation or regulation (in the majority of cases) the cost can – like the basic risk – be “transferred”, normally by way of a contract of insurance, to a third party.
Again, no big surprises there.
However, (according to a figure contained in one of the presentations) the total cost of settling a loss, to the organisation accepting the risk transfer, can be more than six times the amount of the initial claim.
Before the seminar I was “firm” in my assertion that prevention is better than cure and “pretty firm” in my belief that, IF the distribution [broker] channel did not absorb (for itself) value, intended for policyholders, the industry and its customers would be better served. That, post loss, the secondary industries, that insurers and legislators have “cultivated”, add disproportionate cost for all parties, whether a claim is successful or not.
Hard conclusions: we aren’t very good at risk identification, rating or management; a reflexive view of business exposures is no longer adequate for the pace and needs of customers’ in the Digital Age; the true costs of outsourcing (even offshoring) services are considerably more than they first appear; we are very efficient at generating revenue AND reputational damage!
Questions that people in insurance and risk management industries find difficult or aren’t prepared to answer:
is our (business) exposure to risk [appetite and tolerance] the extent of what a “responsible” business leader should address?
if all we deal in is risk (known), what measurement, rating, management provisions or incentives are made for what is “unknown”?
The current culture is unsustainable and regulation is NOT about to change that or improve the customer proposition!
The upshot is that the policyholder, who pays the premium, is better served by accepting responsibilities and investing in risk prevention [Loss Resilience] whilst the insurer(s), who carry the risks, would be far better placed to incentivise policyholders to do so…rather than over-remunerating brokers to SELL!!!