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June 18, 2002
Message from the Editor
A recent article in Risk Management and Insurance Review piqued my interest. In "The Loss of the Certainty Effect," authors Richard and Barbara Stewart, principals of Stewart Economics, Inc., assert that, "Recent changes in the commercial property-liability insurance business have made it unlikely that large claims will be paid promptly and willingly." They conclude that, "If insurance were seen by customers as less than fully certain and reliable, the resulting discounting of its value—and hence buyers' willingness to pay for it—would be much deeper than one would expect." They predict that unless the industry takes action to regain customer confidence, commercial insurance will spiral into a scenario of discounting premiums, denying claims, and losing both credibility and customers.
I think the Stewarts' article is on target in illuminating a fundamental problem with the industry that's worried me for years. Have insurers forgotten their product is not insurance policies, but the elimination of risk through the payment of claims? Has the basis for determining whether a claim should be paid or fought become the size of the claim rather than the policy language? If claims are the product, why does it seem that some insurers always look for ways to deny them or, if they must pay, drag their feet as long as possible? If claims are the product, shouldn't adjusters be the most respected and highest compensated people in the business? Unfortunately, I fear most professionals' answers would not reflect well on the commercial lines insurance industry.
I think the Stewarts have pinpointed what may be the most significant long-term threat facing the insurance industry. Too many legitimate claims are challenged or delayed for no legitimate reason. If insurance purchasers conclude the risks of collecting on legitimate claims are too great, they will reduce the price they are willing to pay for insurance. Over time, this could threaten the viability of the industry.
So what do you think? Is it becoming so difficult to get commercial lines claims paid that the value of insurance coverage is being significantly diminished? Would it be possible for an insurer to differentiate itself in the marketplace by adopting a more liberal claims payment philosophy? Or, are the Stewarts off base with their hypothesis? Please send your comments to: myview@IRMI.com. [See reader comments.]
Have a great day!
Jack P. Gibson
International Risk Management Institute, Inc.