Have insurers lost their ethical compass?

Have insurers lost their ethical compass? | Insurance Business

Have insurers lost their ethical compass?

The following is an opinion piece written by John Devaney who works for a brokerage in Northern Australia. The piece represents Devaney’s personal opinion and not that of his employer or Insurance Business.

In my over 45 years of general insurance industry experience there’s no doubt we’re in the hardest of hard markets. Far smarter people than me can and have expounded on why this is so. I don’t intend to go there but I will hazard a punt that this hard market is here to stay for quite some time. I’ll go one further and suggest that because of the massive amount of analytical data insurers now possess there is likely to be a far greater underwriting discipline and rigidity going forward. The underwriting algorithms have, if not taken over then are certainly in play as one of the dominant driving forces when it comes to risk appetite.

Overall, I think that’s a good thing. The market, at its horribly hard or super soft extremities makes a fool of itself, derided by the community, be it business or just the mums and dads. Frankly, it can be embarrassing.

Perhaps the pendulum has swung too far at the current time and I caution against where the market currently sits. There’s the just plain silly: “Please advise whether the coffee shop has footpath tables or chairs or signs as a different clause / premium applies” to the more draconian endorsement clauses, for example public liability wordings dealing with subcontractors.

But the thrust of this piece concerns those instances where I think the market has travelled a bridge too far.

Our firm has clients all over Queensland. One such client provides calibration services. They’ve been our client for about three years and at last they saw the light and accepted my yearly recommendation that they need to have professional indemnity insurance. They’ve been in business 20 years and hold three ISO Certifications which are continually audited. In short, they know their stuff.

A quick Google for the uninitiated will reveal that calibration firms provide testing of all sorts of commercial equipment for their ongoing safety and/or functionality. 

Just for the record they’re not testing the firing capacity of the Australian Army’s M1 Abrams battle tank, nor are they testing the seaworthiness of vessels. They test and calibrate small bits of equipment. Probably the biggest thing they test would be an elevated work platform.

Our client clearly keeps people safe. Most importantly, their work saves lives or prevents serious injury. There’s no great leap in logic to understand that, as a consequence, their work saves financial hardship which obviously includes insurance claims costs. Yet out of 35 professional indemnity insurers or underwriting agencies, not one is able to offer a meaningful PI cover. The vast majority decline outright. The two which do provide quotes have an absolute exclusion for personal injury claims.

Our client disclosed that for some highly specialised calibration work they outsource to capital city calibration services, one in Sydney the other in Melbourne. At my suggestion, when these capital city firms were queried as to which insurer held their PI cover – they replied that they don’t have any – they can’t obtain it.

The irony is obvious. A business that clearly and substantially contributes to insurers having a better bottom line can’t get itself protected by the insurance industry.

That’s more than embarrassing.