Show us the money

Does the Canadian P&C industry suffer an “image problem,” as many of its members suggest?

During the April 2006 CIP Symposium in Toronto, for example, many speakers referred to a market survey that purportedly showed only 46% of survey respondents – the number of respondents wasnt stated – expressed confidence in the work of the insurance industry.

Mind you, journalists, politicians and used car salesmen never fare well in these public opinion surveys, either. But as Michel Lis of Swiss Re once said in a different context: “In the game of finding someone worse than you, you will always win.” And, Lis added, it’s not really a game you want to be forced to play.

The industry has already diagnosed the cause. After a particularly tough 2001-03 hard market – featuring higher rates, shrinking coverage, and increased profits – consumers voiced their displeasure to politicians, who intervened in ways that caused a black eye for the insurance industry.

How to remedy this situation?

One approach, adopted by the Insurance Bureau of Canada (IBC), Insurance Institute of Ontario (IIO) and a variety of others, is to publicize the “human side” of the insurance industry.

The theory is that consumers don’t hear enough about how the insurance industry reaches out to its communities by donating to and fundraising for charitable causes, and therefore the industry needs to promote more heavily its many “good corporate citizens” and public safety advocates.

The approach is sound. There are plenty of “good-news” stories in the insurance industry. Trade publications such as Canadian Underwriter routinely witness fundraising enterprises that have flowed millions of dollars to highly worthwhile endeavors. But many of these stories don’t see the light of day in the daily media, which tend to thrive on consumer-vs.-industry antagonisms.

One parallel approach, therefore, is to reframe apparent paradoxes that create opportunities for the daily media to raise their tired banner of “defending the public interest” against the supposedly contrary, private interests of corporations. Under this theory, the “image problem” is rooted at least partly in the public perception – real or imagined – that what is bad for consumers is good for insurance companies, and vice versa.

Take, for example, the following paradox: hard markets are good for insurers, but bad for consumers. Insurers make profits during hard markets in part because risks are tightly-defined and priced appropriately; but these same dynamics spell trouble for consumers, who see rates increase and coverage availability disappear.

A corollary paradox is that soft markets are great for consumers, but not good for insurers. For the consumer, premiums are lower during soft markets and more coverage is available. But insurers burn much-needed capital to lower prices during soft markets; as a result, they don’t collect enough premium for when claims start to escalate.

The end result of these seeming paradoxes is that insurers appear to be celebrating huge profits during times when consumers are hard up for cash and policy availability. Conversely, whenever times are good for consumers, insurers want to increase their rates to make more money.

The pragmatism of IBC president Stanley Griffin’s remarks at the Ontario Insurance Institute’s forum in April 2006 probably represents a healthy recognition of these seemingly intractable dynamics. Griffin told the institute that the insurance industry “doesn’t have to be the most popular kid on the block.” At the same time, he added, it doesn’t want to be the kid that gets beaten up for his lunch money all the time, either.

It is time to address these paradoxes directly. A starting point would be to establish a dialogue with the public.

When insurance companies and brokers talk about ‘profits,’ for example, whose money are they talking about? The answer is: the public’s money…

The public needs to know that the industry must make a profit to help consumers during times of crisis. “Our” profits in the industry are really the consumers’ profits – insurers’ money flows back to the consumers in the form of claims payouts. No profits, no claims payouts, no benefit to consumers who must rebuild their lives in times of tragedy. It’s that simple.

Using collectivist language to describe the money-making nature of the business may help to break down the antagonisms that develop when daily media use language that pits insurers against consumers and claimants.

Getting back to the basics may be the best way to dispel myths that the insurance industry is in it strictly for the money. After all, the whole basis of the enterprise is to share our wealth with those people who desperately need the money in times of crisis and emergency.