Meme of insurers as pariahs is a ploy for greater regulation

The insurance industry is reprehensible, according to Ismail Momoniat. He should know. As the Treasury’s deputy director-general, he orchestrates its regulatory diarrhoea.

Business Day called one of his regular rants a “scathing attack on the short-term insurance sector”. Instead of the industry refuting him at last week’s insurance conference, one of its representatives implicitly endorsed the notion that increasingly draconian regulation, backed by a gigantic bureaucratic empire, should address its “reputational deficit”.

How bad is the industry, and how negative are perceptions? It depends on the weight attached to facts, feelings or flimflam. This column has explained the fact that supposed financial sector problems and promised benefits have never been defined, quantified and monitored. All we do know is that the opposite of what was once predicted materialised, that billions of rand and millions of hours are wasted on enforcement and compliance, that red tape and entry barriers prevent entrepreneurship and transformation and that artificially curtailed services and regulatory costs imposed on consumers reduce access to cover.

We also know that the industry provides huge amounts of job- and wealth-creating capital and disaster relief far in excess of what people could otherwise afford. That is why, far from being negatively perceived, the industry is astonishingly popular among experts, especially bankers. They have so much confidence in insurance that they require it for whatever they finance. Increasingly, the public who can afford cover, have it.

One of the few facts Momoniat mentioned was “the number of complaints going to the ombudsman”, which, he said, “reflect the failure of … internal complaint procedures … the ombudsman received 8,969 complaints”. That number is more impressive than he realises, not because of how big it is, but because it is mind-bogglingly minute.

Although consumers are invited incessantly to dispute claims, less than 0.5% do so. Of those, less than a third are settled in their favour, which suggests 99.9% satisfaction.

There is a perception that claimants generally overclaim and insurers underpay, so actual settlements tend to be about right on average. That insurance entails divergent interests is a fact, not a problem. That the industry and its clients are so good at settling claims is why the government should scrap current and proposed regulatory excess.

Is the industry viewed negatively? Instead of laws derived from whims and fantasies, policy makers should consider facts. Opinion surveys show more negativity about insurance than other industries. But that, say the experts, is easily explained. Insurance is born of need, not desire; people interact with insurers only during disasters; few people invest the time and effort required to understand insurance contracts (especially exclusions).

The meme that consumers view insurance negatively is so ingrained that even scholarly sources assert it unthinkingly. It is, for instance, “undeniable that the industry suffers from a negative image” say the authors of The Insurance Business and its Image. Instead of substantiating their premise, they, like others, suggest palliatives.

In the context of anguishing about “fake news”, journalists are especially vigilant about facts. One of the facts those who write about insurance should check is whether official excuses for self-serving regulation are fabricated or properly researched, quantified and analysed.

BILLIONS OF RAND AND MILLIONS OF HOURS ARE WASTED ON ENFORCEMENT AND COMPLIANCE, ENTRY BARRIERS PREVENT ENTREPRENEURSHIP

Louw is executive director of the Free Market Foundation.