“Both insurers and insurance intermediaries need to fundamentally rethink how risk is assessed”


Not my words but those of Achim Bauer, Partner in PwC’s Insurance Practice. I will be really surprised if any more than 1% of industry “leaders” have read these words before, even though they appear in an industry report that was released in early 2010.

Perhaps it would have had greater impact had it been distributed to shareholders in major insurance firms. Because, whilst they may not be risk experts, they are unencumbered by traditional techniques, engrained belief systems formed over many years and justified (not validated) by decades worth of risk data.

Financial Services has a great technique for dealing with “the inconvenient truth” when it comes to risk and other people’s money. It is something that Ostriches are known for and is the perfect position from which to claim that some major, traumatic, loss event was “unforeseen”. Then, after the event, blame another feathered friend: the Black Swan.

It is worth remembering that unforeseen does not, necessarily, mean unforeseeable.

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Alarm raised over weak insurance protection – FT.com


A new study of commercial risk by the specialist research firm Mactavish, in association with PwC, reveals what it says are “serious deficiencies in how corporate insurance is arranged and the role of boards in governing those arrangements”.  UK companies are said to be exposing themselves to significant and unnecessary losses due to serious flaws in the way their corporate insurance policies are arranged.

The report is based on consultations with over 600 UK companies, more than 100 insurers and brokers, and detailed case analysis.  It paints, says PwC, “…. an alarming picture of inadequate disclosure, widespread ignorance of a very challenging insurance law framework, managerial failure to gather relevant information, deeply uncertain policies and a lack of understanding of how large claims are processed”.

The chief executive officer of Mactavish, Bruce Hepburn, comments, “The deficiencies the report reveals in how insurance is arranged are disturbing.  What we see today is a system that has prioritised low transaction costs above reliable insurance policies.  This approach is not fit for purpose for the environment we are now moving into.  UK businesses, especially medium-sized companies, are putting themselves unnecessarily at risk and in today’s economy are far more exposed if a major insurance policy fails to pay out”.

In last years report PwC and Citi were no less critical of the industry…but I’m not sure anyone is listening!

“Customers, brokers and insurers must all start to invest adequate time into securing appropriate insurance.”

Medium-sized companies are especially vulnerable to having claims delayed or disputed, says the report by Mactavish, a research company specialising in risk and commercial insurance, and PwC, the professional services firm.

It warns that more companies face problems such as those at Eurotunnel , which fell from a €7m profit in 2009 to a €57m loss last year as a result of a dispute with insurers over payments following a fire in the tunnel two years ago.

The dangers have increased because companies have taken on greater risk as a result of operational changes made to survive the recession, coupled with a tougher line on claims taken by insurers struggling to make profits in a weak insurance market.

via FT.com / UK / Business – Alarm raised over weak insurance protection.

UK insurers: Arrogant, ignorant or deaf?


This isn’t the first time that PwC have warned the insurance industry. It is just after the 1st Anniversary of a warning that was “supported” by Citi…hence my question.

March 2010: Transparency – Trust – Trends – TRANSFORMATION

“According to our research, non-life firms could see significant capital increases under the directive as it currently stands, so it is vital insurers explore what options they have available to maximise capital now. This will include identifying where they believe current measures are inappropriate.”

Post Magazine Group News | LinkedIn.

Here is a “surprising” blog from Martin Friel at Insurance Age. I say surprising, merely because it was deemed worthy of comment! In the grand scheme of things that have gone so badly off the rails, in UK insurance, this strikes me as pretty mundane. Truth is, the really juicy stories just don’t tend to openly talked about or published. These are more about the people…whether directly (policyholders) or indirectly (investors)…who, ultimately, pay the price of yet more FS shenanigans. Because someone will pay the ferryman and, in reality, it looks like insurer results are going to have to be REALLY bad before they even attempt to justify rate-hikes in the current economic climate – and make highly leveraged, high growth, strategies pay off before financial collapse follows the, evident, failure of risk management and moral corruption – but NOT BEFORE all kinds of awkward questions about rating bases, broking remuneration and claims handling/management are asked:

Why on earth would an underwriter go anywhere near a book of business that had a 90% loss ratio? Unless the company in question is putting some astronomical rates into the market, then I just don’t see how this can work. I’m not an expert by any stretch of the imagination but surely this is essentially encouraging every broker with a poorly performing motor fleet book to, I believe the term is, fill their boots.

Transparency – Trust – Trends – TRANSFORMATION


Sadly, the only thing that has changed since I wrote this (nearly 1 year ago now) is that we haven’t started the recovery because, courtesy of a General Election and Quantitative Easing…storing up MORE DEBT…we were "conned" into believing that things were going to get better.

I fear the bottom line is that the money that has been pumped into the economy (primarily what has gone into the banks) has only served to inflate "new" bubbles.

Roll on 2012!

Transparency – Trust – Trends – TRANSFORMATION Even I am getting fed up listening to the messages that keep going around in my head and sometimes wonder how much EVIDENCE it will take to get the message across…THAT THE FINANCIAL SECTOR & PROFESSIONAL FIRMS THAT ARE “EARLY ADOPTERS” OF A NEWLY TRANSPARENT CULTURE WILL, NOT ONLY, SEIZE THE MORAL HIGH GROUND, BUT GRAB SOME (free) HEADLINES ALONG THE WAY AND GAIN A HUGE COMPETITIVE ADVANTAGE. OK, SO WHAT’S EVIDENCE? Edelman Trust Barometer Wh … Read More

via Get "fit for randomness" [with Ontonix UK]

2010 Report Updates: FS cannot function without trust


This is a “headline” so obvious that it may well be a contender for non-news item of the decade…

image

So you would be entitled to assume that strategists within major banks and insurers would be busily scurrying around frantically innovating new products and services that simply ooze customer value. Frankly, anything that rebuilds trust and engenders loyalty, in an effort to undo the reputational damage done in recent years.

Yeah right. Customers aren’t really that important…yet!

I commented upon Edelman Trust Barometer & “Which?” reports earlier in the year – found at the following link:

Transparency – Trust – Trends – TRANSFORMATION

I know I have been going on about this for a long time now BUT, from the distinct lack of any change of attitude or strategy, it appears that the customer message has not been taken on board. Further evidence of the arrogance of FS and, in my humble opinion, a very serious mistake. As we enter, what will be, a difficult and painful period for UK (and beyond) the realisation that the perpetrators of so much of the financial misery have “escaped”, unscathed –  apart from a lot of Governmental and Regulatory rhetoric, will lead to a public backlash! Of course this has most serious implications for Government as society suffers.

FS firms who wait before offering truly innovative solutions and reintroducing customer value – instead of stripping it our for themselves and for their distributions channels – will only confirm, to the informed observer, that they have failed to learn any lesson from past, inglorious, failure.

To adapt the words of Warren Buffett “If value is what you take price is what you will pay

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