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The writer is a senior industry manager who is obliged by his employer’s compliance rules to remain anonymous

NOT A DAY GOES BY WITHOUT ANOTHER HEADLINE appearing in the mainstream press or a flurry of hysteria on talkback radio about the lack of affordability of insurance in this country.

Joe Average might have heard some say that it is due to the impact of an unprecedented run of catastrophes across the region of late. Others might have suggested that it’s the lack of government action on flood mitigation that’s to blame; or perhaps the rising cost of reinsurance across the globe. It might be the fault of lawyers or even organised crime syndicates (and is there a difference?). Stephen Mayne will probably have told Joe that it’s due to the enormous and unwarranted salaries paid to insurance company executives.

Doubtless all of these arguments have some merit, but I can’t help but wonder what Joe would think if he understood where all the money he e betterment debate) for our neighbour in need.

In its purest form, insurance is a socialist concept wherein lots of people all pay a little so that the few who need a lot can get it when they need it. Rather than just standing on the street corner warming our hands from the radiant heat and saying “You poor bastard” as we watch our neighbour’s barn burn down on a cold night, we get to feel warm inside as well knowing that he’ll be okay because we have all made our own contribution to raising a lovely new barn (not too lovely; we don’t want to have to have the betterment debate) for our neighbour in need. It’s not remarkably dissimilar to how I imagine the discussions might have gone around the table in Ted’s Coffee House back in 1688. But those were simpler times, when men wore tights and wigs and knew how to add up in their heads. If there were 100 shipowners who each threw in a thousand pounds to create a pot, there would be 100,000 pounds in the pot to refloat the boat when the worst happened. But in the ensuing three centuries we seem to have lost not only our sense of fashion but also our way. We’ve created a marketplace full of markets, where the pirates outnumber the shipowners, and the numbers no longer seem to add up. 90

And so this year when Joe Average and 99 of his mates all pay their $1000 premium they might be alarmed to know how much of their money actually makes its way into the pot. First we’ll have to pay the intermediary. He might be a broker, an AR, a sub-agent or a spotter. Or, worse still, he might be a spotter to a sub-agent of an AR of a broker. And they all have to get some. Our broker might have placed the business through an underwriting agency acting on behalf of the insurer, or she might have dealt through a wholesale broker – all of whom have to take their cut. It’s increasingly commonplace that the insurer owns the underwriting agency or even the brokerage, but they’ll still all take a cut on the way through.

Of course we can’t forget to make our contribution to Consolidated Revenue, so we will have to pay some out to various levels of government along the way; and because we are really clever, in some cases we will charge a tax, then add a levy and finally another tax on the tax and the levy as well. The insurer gets most of what’s left, although before they pay any claims they will have to give a bit to their reinsurers, and the reinsurers’ reinsurers – and don’t forget the reinsurance brokers. The actuaries, the loss adjusters, the claimshandling agents, the compliance and dispute resolution consultants will all need some, too.

And then the insurer can pay their own expenses of running the insurance company, and finally a few dollars should make their way into the pot to pay some claims. But not too many claims, because otherwise the insurer’s shareholders will get cranky and he’ll have to get Joe and his 99 mates to chip in $1500 each next year. It’s no wonder everybody is worried about the affordability of insurance in this country,  Comrade. Expensive, inflexible, unattainable: Why aren’t we working harder to provide insurance for lowincome earners? See page 51 insuranceNEWS

June/July 2013

Profile for Insurance News (the magazine)

JUN/JUL 2013 - Insurance News (the magazine)  

The wide world of insurance is well illustrated in the latest edition of Insurance News (the magazine), which will be posted out to subscrib...

JUN/JUL 2013 - Insurance News (the magazine)  

The wide world of insurance is well illustrated in the latest edition of Insurance News (the magazine), which will be posted out to subscrib...