Stupidity insurance – why your business needs it?

People do stupid things all the time so why shouldn’t you be able to get insurance for that? Or maybe you can? Read on to find out if you need Stupidity Cover today.

Thank you to everyone that read my last blog. The response from brokers who are interested in liability has been quite amazing. I thank you for that. All 5 of you. So now that we all understand what a liability is and who the mysterious third party is, lets get real here. Let’s just tell it like it is; liability cover in many ways is just human stupidity insurance. Nine times out of ten, either someone has done something stupid in the business, which leads to a customer getting injured or the customer has done something stupid which leads to them suffering some kind of harm. Its a circle of idiocy.

Many product liability claims stem from a moment of sheer Darwinian brilliance where a consumer imagines that they have found a better way to use a product other than that specified by the manufacturer. Take for example the genius in this video clip:

A drill should not be used to eat a mielie (that’s corn on the cob if you’re reading this outside SA). Nothing is foolproof, because the fool is extremely inventive. Without the fool we would have far less content on Youtube, the social media platform built upon the broken bodies of individuals who push the boundaries of stupidity, for our entertainment every day.

In SA, like many territories around the world, we have some pretty robust consumer protection legislation. This means we are protected, often even when we’re being stupid. The Consumer Protection Act places a big responsibility on manufacturers and many others in the supply chain to ensure that the instructions and warnings on products are clear. See this article on the subject.

Fortunately most product liability insurance policies do recognize that the label is a part of the product, so if the injury happens as a result of poor labeling, the claim should still be covered. There is of course an onus on the supplier – don’t you love the word “onus“? Sounds so…anatomical. If you don’t observe the onus, you could soon see your anus. I’m the master of lavatorial digression, please forgive me.

As I was saying, there is an onus on the supplier to comply with local legislation when putting the product into the Republic of South Africa. Businesses that are importing stuff from say, China, shouldn’t assume that their insurers will pick up the tab every time someone chokes on a squidgy because the label was in Mandarin. Mandarin is a language spoken in China to those of you less travelled. It is also a type of fruit. Labels cannot be in Chinese or Fruitese in South Africa.

So obviously warnings and instructions need to be in a language people understand in that territory. SA businesses do not produce manuals in all eleven languages. I remember buying a TV set once and after removing the set from the box, discovering an operating manual the size of a phone book. The book weighed almost as much as the TV and just before I panicked and handed it to my teenage son for interpretation, I realized that the instructions in English only made up about 5 pages. The balance of the tome was in a language from almost every country in the world. To be honest, I may as well have read the Greek section.

I really love this bit in our CPA. The part that tells you about plain language reads:

“For the purposes of this Act, a notice, document or visual representation is in plain language if it is reasonable to conclude that an ordinary consumer of the class of persons for whom the notice, document or visual representation is intended, with average literacy skills and minimal experience as a consumer of the relevant goods or services, could be expected to understand the content, significance, and import of the document without undue effort, having regard to:
– The context, comprehensiveness and consistency of the notice, document or visual representation;
– The organisation, form and style of the notice, document or visual representation;
– The vocabulary, usage and sentence structure of the notice, document or visual representation; and
– The use of any illustrations, examples, headings, or other aids to reading and understanding.”

Plain and simple right?

The bottom line is that businesses have to assume that their customers are going to do something stupid and should factor that into the instructions and warnings. They also need to spend time thinking about the way in which the information will be presented. 11 official languages in SA do present a logistical problem but as the CPA suggests, diagrams are a useful alternative to text. That is why some businesses have cleverly done away with wordy labels and instructions and have instead opted for pictures. Nowhere is this more evident than in the air travel business. Airlines have to contend with a whole host of language problems so they very effectively use pictures to get their message across clearly:

Keep it plain and simple. I’m the LiabilityGuy.

Note that as I am the LiabilityGuy I have to include a suitable disclaimer so please don’t treat any of these blogs as legal or financial advice. Be sure to chat to your broker if you’re a policyholder or if you’re a broker yourself, chat to your favourite insurance underwriter (follow my eyes) to get some detailed training or product information. The opinions expressed here are all my own, written in my personal capacity.

A Question of Trust

Title image from Risk SA article
Title image from Risk SA article

A recent article depicting insurance as one of the least trusted industries prompted me to write an article for Risk SA in the July 2014 issue. In the event that you think it’s work circulating there is a link to that PDF version at the bottom of the page.

The article on the most (and least) trusted professions in South Africa was originally written by a fellow called Quinton Bronkhorst for Business Tech. I can only assume he had to wade through tons of mind-numbing figures before getting to the table below, which I think you’ll agree is quite distressing if you’re in journalism, law enforcement, insurance or politics.

 

 

The original report was produced by global market research company, GFK. I always take these global studies with a pinch of salt because the samples used to derive the information are often relatively small, particularly once you drill down into the South African specifics. In this particular instance, 28 000 people were interviewed around the world. The number included 1194 South African respondents.

The numbers in the table indicate that of the total number of people interviewed, a specific percentage trusts the specific profession. This means effectively that out of 1194 South Africans, 95 per cent said they trust doctors compared to only 43 per cent who trust politicians. It seems likely that 43 per cent of the respondents were politicians. Incidentally, if one benchmarks SA against other countries – politicians, on average, have a trust level of 31 per cent. We are more trusting of our elected officials. I guess that is borne out of our recent election results where a slew of corruption charges against some individuals appear to be less concerning to the populace than the dress code in parliament.

Also worth noting is that 5% of the respondents don’t trust anyone.

As an insurance professional, I took serious umbrage to the notion that we only scored 57%, especially when one looks at the overall context, even cab drivers, whom I assume are actually mini-bus taxi drivers, scored higher than the insurance industry. For goodness sake, even South African policemen fared better than insurance agents. .

 It would be far too easy for us to dismiss the insurance numbers by simply sticking the whole industry into the grudge purchase box. However, I don’t believe the nature of the product or service has anything to do with trust. In fact, if trust were inextricably linked to the nature of the service, even doctors would find their score slipping to the bottom of the table. Not too many people enjoy a visit to the doctor, unless you are a hypochondriac or a medical sales rep.

If the negative perception is not related to the nature of the service then perhaps it is related to the dreaded claims rejection? Shortly after I read the Trusted Professions report, I noted that the Ombud for the short-term insurance industry had also published some figures. The Ombud is a free resource for consumers who feel their claims have been unfairly rejected. In 2013, he received just under 10,000 complaints. This is a pretty big number but the reality is that out of almost 2.7m claims, less than 0.4% resulted in a dispute with the consumer.

So if the grudge purchase factor and claims payments are not the cause of our risky reputation, what remains?

Some years ago, I was privileged to attend a presentation delivered by market leader, Peter Todd. In his presentation he spoke of insurance professionals having a noble purpose. The word noble or nobility, generally conjures up all sorts of regal, even saintly imagery. This struck me as strange as many of the professionals I had worked with in the industry over the years knew the risk transfer business inside out, but didn’t exactly fit the knightly bill.

Knights of the Rating Table

Todd’s reference to our noble purpose had quite an impact on me. Attention had been thrown on the fact that much of the negative perception in our industry is self-perpetuating, partly through the way some insurers market their services but largely due to the way the individuals in the industry carry the message.

There isn’t a great deal we can do to halt the commoditisation of insurance products and I guess to some extent, buying insurance will always largely be about the premium. I do however believe there is something we can do about the way we carry our noble purpose message every day.

 I’ve worked in a big insurance company, a few global reinsurance companies, a couple of Underwriting Agencies and more recently, in a local brokerage, and I noted a few things that many of these firms had in common:

  • Most of the older staff had not made a conscious choice to be in insurance. They had fallen into the industry. Many would even joke that they’d been sentenced to life but commuted to short-term.
  • Often these businesses struggled to attract and retain younger talent. Graduates with some insurance experience were in high demand due to their scarcity. Many actually left the industry after gaining some work experience.
  • Generally, a high percentage of the staff (particularly in the bigger companies) had a negative perception of insurance themselves. It was not uncommon for brokers to blame insurers in front of clients when a claims problem arose and it was not unusual for insurers to dismiss brokers as perpetual moaners when policy issues arose.

The talk made me think about how I perceive the industry that I’ve earned a good living out of over the past 23 years. It also made me think of the enormous impact the industry had on my kidneys and liver for the first 10 years, but that is a bleary-eyed, dialysis infused story for another time.

I was transported back in time to the moment I started in insurance. I recalled being almost immediately embarrassed by my chosen profession. I discovered in my early 20’s, at a very impressionable age for a young underwriter, that insurance was not as sexy as depicted in the brochure. In fact I remember concocting a joke that elicited much mirth at insurance functions. I’d introduce myself as an underwriter, then I would quickly qualify that an underwriter was like an undertaker. The only difference being that an undertaker had clients that were livelier. This joke, it transpired, was not very funny to non-insurance people, or to undertakers. My colleague, Ed Jordan recently shared a story with me that I believe to be more apt. Upon arrival at a retirement home to deliver a load of baked goods (a charitable initiative of SHAs), he was confronted by an old fellow who commented on the use of the word underwriter on the side of our team van. “Is that like an undertaker?” muttered the old boy. “Similar, but we take care of you whilst you’re alive” responded Ed.

Unfortunately it would appear that this vocational embarrassment is not unique, and still exists in today’s insurance industry. Some would argue that the sector is filled with brilliant products that no one really wants to buy, sold by people that don’t really want to sell them. Not only a grudge purchase but a grudge sale too. Somewhat of a miracle then, that the combined short and long-term industries produce almost 20% of the country’s GDP and employ over 100,000 people.

The 2013 KPMG report draws attention to how the insurance industry is trying to clean up its image. R2.1 bn in fire and hail claims were paid in the last quarter of 2012 alone. Without that valuable service many people would have lost their homes, cars and even their jobs. If one adds to that the number of families that benefited from life policies (R6.8 bn across the whole year) it becomes apparent that society would actually grind to a screeching halt without the risk transfer industry.

The KPMG report is extremely comprehensive but I very much doubt that the majority of people employed in the insurance industry even know of its existence, let alone read it. So if we as an industry don’t know about the impact of our noble purpose, how can we expect this from the begrudged buyers?

A political party recently used the phrase ‘A good story to tell’ in its 2014 election campaign. The insurance industry is filled with ‘great stories to tell’ but if we don’t tell them no one else will. We will be doomed to hover around the bottom of the Trusted Professions list, saved only from last place in morbid hope that our politicians will continue to disappoint the electorate.

I’m the Liability Guy.

References: 

SA’s Trusted Professions

Ombudsmans report

KPMG Insurance Report  

Risk SA Article

The dirty business of director’s liability D&O explained like never before (PG16)

Last week was a blur, I spent three days on the road with the Insurance Bootcamp folks. We’ve done Cape Town, Durban and Joburg and now I’m sitting in my hotel room, massively inspired to write a little something of this grand adventure.

Eager insurance pros magically fill the Balalaika conference room
Eager insurance pros magically fill the Balalaika conference room

Firstly let me clarify that Insurance Bootcamp has nothing to do with physical exercise. Nor does it involve brokers in a race to pilfer each other’s clients, nor is it a wrestling match between underwriters as they try to beat each other into submission with rate cuts. In fact, it mostly involves chugging down coffee and baked goods whilst spewing forth great wisdom about the mysteries of the world’s second oldest profession. This particular Bootcamp focused on the ever-expanding mountain of litigation risks facing business owners.

As such financio-legal wisdom is not easy to come by (I do believe I just created that fantastic term by the way. Readers may use it as they wish without fear of copyright reprisal). Anyway, forgive the digression but any notion that I may have possessed this peculiar combo of financial services and legal knowledge was quickly shattered when an obviously impressed delegate, who was clearly paying attention to my slides, complimented me on my choice of socks. Herewith a photo of day 1, 2 and 3 socks for your information.

Day 1 thru 3 foot cover
Day 1 thru 3 foot cover

Aside from a clear demonstration of superior taste in footwear I’d been asked to share some of my experiences with some oft misunderstood areas of liability business namely, Professional Indemnity (PI) and Directors & Officers Liability (D&O). Who names these products by the way? You’d think that given the flexibility of acronyms, that a bit more creativity would’ve been applied. For example, the latter could have been named Derivative Indemnity Liability – Directors & Officers, also known as DILDO. Just think of the possibilities. Upon being appointed to the board, a director could state, “there’s no way I’m exposing my ass unless you get me a DILDO” or ” go ahead and sue me, I’ve got a DILDO and I know how to use it”

Given that there may be readers of this blog who are not in the insurance industry and whom are possibly sensitive to the use of the DILDO, I shall revert to the original D&O.

So what is it then? It’s a legal defence and damages policy invented by Lloyd’s back in 1930, probably as a consequence of the Great Depression. Someone felt it was a good idea to insure the directors just before they threw themselves out of a high-rise window. After all what good would the embattled CEO be to a disgruntled shareholder when he was broke, both physically and financially.

Unlike the basement-diving, kamikaze directors of the time, the cover never really hit the ground, that is until the Americans got hold of it. Americans love liability policies as much as they love guns. Guns can also be useful for solving shareholder disputes by the way. Cheaper than the D&O policy and you don’t have to provide a copy of your financials to get one.

Dirty Business
Dirty Business

So, many years later, this incredible piece of insurance wordsmithery found its way to the shores of our country. South Africa, the land of opportunity. The place where even the most corrupt of politicians can legally earn a living by fleecing honest folks out of their hard-earned cash. Fortunately D&O insurance is gaining popularity amongst private sector directors, because unlike their public sector counterparts, they are actually held accountable for their mistakes.

The policy really is a “must-have” these days for all directors and business owners. Why, you ask? Why, oh wise liability guy with great socks?

Well, Directors and Officers liability insurance protects business leaders from litigation which may be initiated against them by stakeholders. A stakeholder, in the context of the Companies Act, is not a person wielding a large cut of beef, nor a fearless hunter digging up dirt and seeking out blood-sucking miscreants (although I’m told Thuli Madonsela is making excellent progress in her investigations these days). Actually a stakeholder could be any party that suffers a loss as a result of the negligent actions of the directors or officers in carrying out their fiduciary duties. The word fiduciary it turns out is hysterically funny to my teenagers, who immediately identified the hidden colloquial term, “douche”. For those that don’t know, the word really refers to the high standard of care expected of directors, rather than a derogatory term that could be used to describe a politician.

Don't throw away your vote
Don’t throw away your vote

A client of mine had the misfortune of going head to head with the National Consumer Commissioner a while ago. It’s ok to chat about this because neither of the protagonists in the tale subsequently retained their positions. The whole sordid debacle did however cost the CEO and the Company over R7m in legal fees. Fortunately the DILDO was close at hand and a large portion of the financial pain was taken care of by the insurers.

So it would appear that having this specialist insurance is a necessity and that every decision maker in the company should have the benefit of a policy. This, coupled with the relatively low premiums charged by insurers does mean that brokers are able to sell the cover with relative ease. Like selling firepools at a national security conference. Herein lies the danger for the insurance agent selling the cover. The temptation to spend less time explaining the cheaper covers to a potential insured is ever-present. Exclusions and notification requirements for D&O can be a little different to traditional policies. Given that the directors personal assets are at stake when a claim ensues, the risk of repudiation should be mitigated through careful explanation of cover with every client.

Sounds complicated? Herewith something simple for my fellow insurance intermediaries, for free:

The Liability Guy’s Theory of Relativity, “The amount of commission derived from the sale of D&O is inversely proportional to the amount of shit coming your way, if you make a mistake.”

In all seriousness, hats off to the Risk SA guys and all involved with Insurance Bootcamp. Great to be a part of the event.

A selfie. Me and 200 friends in Jhb
A selfie. Me and 200 friends in Jhb

I’m the Liability Guy, take care.