Tuesday, February 5, 2013

You're Invited to the Insurance Industry Pity Party!



I don't know if this is a recent thing in the insurance industry or entrenched lore centuries old, but insurers appear to having an ongoing pitiful pity party.  This has to be the grandest of tantrums that I have seen grown adults throw.  And so well organized!  It's really quite silly and unproductive.  

The party begins when insurers feel that their carefully calculated risk is rejected by society.  Then insurers begin to lament, "People do not understand the value of insurance! We are so misunderstood :-(. "  This misunderstanding claims the Geneva Association has "led to disappointment or disillusionment about the industry."

Then comes the battle cry, "We need better communication!  We need better understanding!  If people are educated on the science of insurance, they will understand our value.  They will accept our costs!"  For instance, from the same Geneva Association report,
Correct and unbiased information on how insurance contributes to society and the economy is paramount, since lack of sufficient education often results in a negative opinion of the industry that can severely impact consumer confidence. 



Whatever! The claim that society does not understand the value of insurance is nonsense.  Just consider the hoops and backbends that government officials perform in an effort to maintain some semblance of stable insurance markets.  Consider the frustration that the public exhibits over ease of access to affordable insurance.  I would argue that society understands all too well the value of insurance and perceive it not just be valuable but invaluable. This, of course, causes contraints on the pricing of insurance much like it does on water and gasoline.

Further, that the cost of insurance is undesirable to current or would be policyholders is not equivalent to misunderstanding the industry.  Perhaps instead the industry misunderstands the public.  The public may have little desire to purchase insurance for a given perception of risk.  There is disagreement about the risk not the value of the industry of the insurance technology.

Let's try an analogy.  A person needs a pair of shoes to protect her feet.  She goes to the shoe store where she finds only steel toed boots for $200.  She gets upset, not because she is opposed to the concept of shoes or a shoe industry but, because she does not feel that the risk to her feet warrant steel toed boots at $200.  The store owner, rather than seeing the opportunity to diversify his products for sale, gives her brochures on foot injuries, shoe manufacturing, and economic statistics of the shoe industry.        

Efforts to educate the public so that they "will see the risk our way" will likely be met with resentment because society has its own list of different concerns.  High on that list is not likely to be the hurt feelings of the insurance industry.

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