Insurance industry wrestles with poor reputation

Oct 23, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Familiarity breeds contempt when dealing with people, but it breeds favorability when dealing with insurers.

People have little regard for the insurance industry as a whole, but they generally don't have anything against individual companies, according to Nicolas Boyon, senior vice president of Washington-based Ipsos Public Affairs.

Almost four-fifths of 4,167 respondents to an Ipsos survey released this month had an unfavorable or neutral opinion about the insurance industry. But of the 30 insurers in the survey, none was viewed unfavorably by more than 12%.

Insurers asked about in the survey included Allstate Corp. in Northbrook, Ill., Liberty Mutual Insurance Co. in Boston, MetLife Inc. in New York and State Farm Life Insurance Co. in Bloomington, Ill.

The insurance industry ranked seventh of eight industries studied. Only the oil industry - due to the public's frustration over gasoline prices - scored lower.

Even the federal government had a better reputation than insurers.

The food and beverage industry scored the highest, mostly because it advertises more, and everyone likes to eat and drink, Mr. Boyon said.

"On the other hand, people usually deal with insurers only when something bad has happened," he said.

Ethical lapses

The survey asked about ethical business practices; customer service; community, environmental and charitable commitment; and producing returns for shareholders -both for the industries and for individual companies. The industry scored poorly on most questions related to social responsibility, trust and ethics.

Public perception of insurers suffered from past ethical lapses, and regulatory disputes and lawsuits, said Brian Atchinson, executive director of the Insurance Marketplace Standards Association in Bethesda, Md. "But insurers can turn these lemons into lemonade."

"Ethical policies can't be buried in file drawers," Mr. Atchinson added.

"There has to be a cult of compliance - every sale has to be done on a needs-based analysis," he said. "There can't be an obsession with short-term gains and all the wrong incentives built into the sales process."

Life insurance and annuity companies that invest in a strong ethical infrastructure are more likely to reward consumers and shareholders, said Martin Grace, a professor at Georgia State University in Atlanta and the author of an insurance ethics study released in August. These companies are in turn rewarded by lower compliance costs, he added.

Best at profits

Although Mr. Boyon wouldn't release the individual company rankings, as he agreed with the sponsoring firms to keep these confidential, he noted that the very large companies and those that occupy a niche tended to inspire the best opinions.

"Insurers with significant shares - more than 2% - of their target market were familiar to the respondents and therefore scored well," he said.

Those companies that focus on a specific client group or type of coverage also did well, as their specialized expertise and knowledge of their customers impressed the public, Mr. Boyon added.

Profitability also tended to breed some contempt.

"The area in which the insurance industry is perceived to be the best is being profitable," Mr. Boyon said, adding that this is the characteristic that is least likely to generate a favorable response from the public.

Surprisingly, claim delays and denials related to Hurricane Katrina didn't significantly tarnish the reputation of property-casualty insurers. Almost 90% of homeowners in the Gulf Coast region said they were satisfied with their insurers, the survey found.

People want to believe in their insurers, Mr. Atchinson noted.

"It is an emotional subject for them; it's their safety net," he said. "They have a great need for confidence in these companies."

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