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Short term Insurance
Sunday, January 1, 1989
Lack of trust

The Americans seem to have a problem with their image, particularly when it comes to short-term insurance.
Says Albert Millus in Best’s Review, “Insurance in the US is a business not a profession. It is a way to make money, not a public trust. “To be highly regarded, an insurance company must be more than a business enterprise, and making money must not be its exclusive objective,” he says.
When comparing the British and the Americans from an insurance point of view, there tends to be a differentiation. This is especially from the aspect of claims handling where the US industry is less efficient than its British counterpart.
Lloyd’s underwriters are meticulous with the accurate contents of their contracts. Then, when claims are filed the contracts are interpreted and applied with professional fairness.
On the other hand the American industry has, on occasion, been accused of “bad faith” claims handling.
Over the last few years US insurers have been faced with numerous claims which they have gone out of their way to avoid paying. These claims have been largely in the area of workers’ compensation, including dust diseases, loss of hearing, radiation, asbestosis and work-related stress.
The insurers went on the defensive, trying to avoid payment of these claims, even seeking legislation in the process. It almost seemed as if their only aim was the accumulation of profits and the insuring public was merely used as a tool. As a result policyholders often complained of the claims process being full of problems, and turned to the law in search of some satisfaction.
Lloyd’s, though, cannot be put on a pedestal of perfection either. Its esteemed underwriters have on some occasions undertaken questionable tactics. For instance it covered nuclear plants, whose operating licences had been withdrawn, by calling them non-nuclear.
The Americans also tend to be nervous with the bigger risks, such as floods and earthquakes. They tend to offer coverage, accept premiums and then shift the liability to the federal government.
Lloyd’s, on the other hand, takes a different approach. For example, after the San Francisco earthquake it sent a telegram to its agents in America. This instructed them to “pay all Lloyd’s policyholders in full, irrespective of the terms of their policies.”
Naturally any business does aim to be profitable. “But”, says Mr Millus, “there is a difference between making a profit regardless of how the customer is affected and operating profitably with due regard to the customer’s interest. American business generally, including the insurance industry, has often failed to keep this in mind. But while insurers have every right to contest fraudulent claims, they should handle other claims with good faith.”
The answer to the American insurance industry’s sorry image may lie in its business philosophy. Great care should be taken not to put financial objectives before professionalism.
There is a strong British regard for the insurance contract to be seen as a “gentlemen’s agreement.” And this moral obligation is slowly beginning to infiltrate into the US, where intermediaries are being urged to build up a stable and continuing relationship among clients. This allows all parties involved to work toward their mutual arid lasting benefit.
Lloyd’s may not always be able to keep up its high moral approach to underwriting. However, it maintains that every effort is made to accommodate the client’s needs. America tends to stick to more selective underwriting, which has added to that country’s poor industry image.
Lately there have been large numbers of insurance company insolvencies in the US. Investigations have revealed bad management, improper reserves, bad underwriting judgment and unsound rates.
Higher public esteem seems to be the keyword for the American industry. But to achieve this some of the British doctrines of insurance will have to be adopted. An insurance industry based on the utmost good faith and mutual trust can only flourish because of the support it receives from its consumers.

Copyright © Insurance Times and Investments® Vol:2.1 1st January, 1989
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