Wednesday, November 17, 2010

A Word About Insurance

Though I am not aware how I first developed the thought (and pardon me if the result sounds Bolshevist), I have long maintained that the world is effectively run by the banks and insurance companies. In my view they represent the cornerstone of commerce, like it or not. In the pyramid of industrialists those businesses are pretty much monopolized by the same people or at least guided by very many of the same principles. Anyway apart from the incestuous management and any politically subversive views they may engender, I suppose I could enlarge upon the comparison by suggesting for example that getting a loan is somewhat like insuring one’s life or material possessions for hundreds of thousands of dollars; viz., both events involve commitment to a sizeable monthly outlay and the hope that in the end it will all pay off. But forgive me for having dilated upon the subject unnecessarily as it is neither the alliance of, nor the similarities between, the banks and insurance companies which prompts me at the moment. What compels me today to opine upon the subject of insurance companies in particular is that I have just applied for what the Lawyers’ Professional Indemnity Insurance Company calls “Excess Errors and Omissions Insurance”, that little extra $1M - $9M of coverage just in case.

Whatever the insurance, the game is really the same. And I don’t just mean about risk assessment, which is all very well for the underwriters (you’ve got to love the terminology). For the clodhoppers in the street who are purchasing the “product” (another delicious term of art) it’s all about enjoying a comfortable repose in one’s drawing room at the end of the day or sleeping soundly at night. It’s about “peace of mind”as they say, that soporific additive of the consumer world. While I am tempted to be cynical about the fear campaigns which insurers undertake to derail us sufficiently to oblige us to buy their contracts, it must be owed that the statistics are quite compelling. In the case of lawyers, as much as one might flatter oneself about his or her professional acumen, the numbers certainly favour a little less bravado and more admission of the commercial realities heralded by the industry wizards.

It is difficult to escape the possibility that the whole insurance system is driven by the very knowledge that there is insurance. I suspect if the claimant knew there would be nothing but an empty though attractively sealed Judgement in the end, it wouldn’t profit him or her to prosecute so aggressively or so expansively simply to make a point. Nonetheless if one is on the receiving end of a sizeable claim, or even if the statistics are that you might reasonably be so, it surely provides more than a little consolation to know that there is an ample amount of the right stuff in the wings to buffer the jab. When the proverbial finally comes home to roost (assuming it does) it is then too late to contemplate how relatively little it would have cost to insure against such possibility. As in so many other things in life, it is a question of priorities. Remarkably the assessment of those priorities often attracts little serious contemplation until it is too late.

I have known people - two in fact - who refused to insure their respective homes. One was a Scot (and you can do whatever you want with that isolated fact), the other a Bohemian (I use the term illustratively only, not to say he came from Bohemia). The Scot ended by selling his house, pocketing the change and likely saving a few pennies on the annual insurance premiums. The socially unconventional artist, however, didn’t fare so well. His place burned to ground and he lost everything in it, all he had in this world. Even if you discount the value of his personal belongings I imagine while contemplating the smoldering cinders he may have weighed in his mind the comparative value of his loss against the premiums. The sad result of such comparative analysis is that the loss frequently far outweighs the cost. Besides, the cost - particularly when spread over the twelve months of the year as is now so fashionably done in keeping with the general scheme to buy everything on time - is really quite paltry.

Where things get all mixed up is when one tries to out-guess the pundits, or what is possibly more egregious, to out-manoeuver the odds. It truly becomes a gambling game, not quite the way one should run a business. Yet how odd it is that even when the stakes are so very high many of us presume to foresee the future more clearly than the auditors. As though to scoff at the industry, some argue that the only way the insurance companies can afford to build and maintain such grand structures for their offices (which are invariably conspicuous monuments to wealth, though I suspect the insurers prefer to fashion them more as a display of stability) is by orchestrating and manufacturing untold exposure to risk which in the end turns out to be mere puffery. The problem is that they can afford to be wrong, we can’t. And then there’s that feature about numbers, spreading the liability among numerous interested parties (one here begins to see the poisonous roots of the related stock market). Just thinking about those concepts immediately brings to mind the swooping curves of graphs demarcated both horizontally and vertically upon large sheets of white newsprint. Heady stuff to be sure!

For me the breaking point of the decision to adopt excess errors and omissions insurance turns first upon the acceptance that, given my already numerous frivolous monthly expenditures, surely this is by far less meaningless and may even be a strategically clever choice; and, second it turns upon the acknowledgement that I am not a risk-taker. Granted there may be occasions where people over-insure themselves, but when you’re talking to someone who was disabled by open heart surgery for three months - and who reaped the benefits of disability insurance - you’re talking to the converted! Where do I sign!

No comments:

Post a Comment