Saturday, 5 March 2016

Who needs a makeover?

Which industries need a makeover? Which industries need to take an an urgent look at their image? I think I know a few.

Some are obvious. Wherever you are in the world you’ll find that second-hand car dealers have a terrible reputation. They’re seen as only one level above crooks and as people you need to treat with a lot of caution. Of course, we all know that there are some who are perfectly trustworthy but I’m sure you’ll agree that many of them are dodgy.

Micro-lenders are another group who we all suspect are untrustworthy. Things are a lot better now than they were ten or fifteen years ago. In those days the micro-lending industry was completely out of control. Luckily our friends at NBFIRA had a tremendous effect but I suspect it will take a LONG time until we overcome our instinctive distrust for them.

Then we have furniture stores. I know for a fact that very few people trust them. The way they use hire purchase has understandably led to most of us thinking they’re dubious.

I know all of this because I have evidence. About a year ago we conducted a survey of almost a thousand people asking them how they rated the honesty of various industries. Only 8% said they thought second-hand car dealers were honest. Only 18% and 22% said micro-lenders and furniture stores were honest respectively. Clearly they have a long way to go.

Of the twelve industries we asked people about, only three were thought to be honest. New car dealers, banks and supermarkets were the only ones where more people said they were honest that dishonest. However, before any bankers reading this start feeling complacent and proud of themselves I need to tell you something that might make you think again. Only 46% of the people we questioned said they thought the banking industry was honest. Less than half of your customers trust you.

It’s even worse for the insurance industry. The worrying news for them is that our survey suggested that less than a quarter of the people think the insurance industry is honest. A massive, worrying, sixty percent of people described their entire industry as dishonest.

I genuinely think that’s a real concern. Insurance is such a powerful, reassuring thing to have that the idea that most of us don’t trust the companies selling it to us is deeply troubling.

A few months ago we heard a story about a guy who crashed his old Toyota Corolla into the back of a Range Rover causing some minor damage to its rear bumper. It was entirely the Corolla driver’s fault and at no point did he deny his responsibility for causing the accident. Luckily for him, or so he thought, although he had no insurance, the Range Rover driver was fully insured. A few weeks later he got a call from the Range Rover driver who explained that he’d submitted an insurance claim for the repairs to his car but had been forced by his insurers to pay an “excess” of about P3,000 and would the Corolla driver pay him that amount back? Being a good guy he immediately said he would, thinking that was the end of the matter.

But that wasn’t the end. No way. Months later he received a letter from the Range Rover driver’s insurance company. They needed him to pay the balance of the repair costs for the Range Rover, a total of P20,000.

That’s when he came to us. Did he really have to pay? The other guy had been insured, hadn’t he? Wasn’t it the job of the insurance company to pay up?

Yes, yes and yes. But he still had to pay. It’s all about personal responsibility. The Range Rover driver and his insurance company were the innocent parties. Our friend the Corolla driver caused the accident and it was his job to pay for the damage he caused. The fact that the Range Rover had the foresight to buy an insurance policy is good but it only protects him, Mr Range Rover, it doesn’t protect Mr Corolla. If Mr Corolla had been sensible enough to get his own insurance policy, it would have protected him. His insurance company would have shouldered the burden. Without such a policy Mr Corolla must foot the bill himself.

Think about the nightmare situation. What if instead of just damaging the Range Rover’s bumper, he’d completely destroyed it? Instead of a repair bill of P20,000 he would be facing a bill for replacing the entire vehicle. It was a Range Rover. It could have cost him more than a million. How many of us can afford that sort of bill? Mr Corolla would have been ruined.

The point of this story is what it taught me. Most people don’t understand insurance and I think that’s why they say they don’t trust the insurance industry. Nobody from the insurance industry has ever taken the time to explain to them what insurance is really all about: the “transfer of risk”.

That’s why the insurance industry needs a comprehensive makeover. Like banking does. And pretty much all of the financial services industry. They all need to start work on a major project to convince us that they’re honest, trustworthy and reliable and that they are the sort of people with whom we can safely entrust our money. They need to start educating us on how their products really work.

At the moment I don’t think they’re doing enough. It’s time for a major industry makeover.

That’s if they want us to continue lending them our money. They do, don’t they?

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