Trust is a much-used, misused, and often abused word in insurance terminology. The entire insurance business is executed based on trust, yet misselling occurs in routine regularity, misusing the trust used to garner the business. Insurers abuse trust when genuine claims are not paid or are inordinately delayed for want of adequate domain knowledge. The power of trust is immense. Trust defines the corporate success today. Trusted organizations are relied upon by customers while making a purchase decision. The presence of trustworthiness allows a person to take control of others. Insurers have not used the power of trustworthiness to dispel grave doubts and apprehensions that mire the insurance business. Trust deficit as a result is palpable everywhere which is certainly a bane. Customer trust and Trust deficit, an oxymoron in the continuum of trust. One moves away from full trust as and when a trust deficit creeps into any customer relationship.
‘In the Analects, Confucius maintains that a trustworthy person is given responsibility.” In other words, a person bereft of trustworthiness will not be assigned responsibility. Any form of governance without the element of trustworthiness would lead to exploitation. Confucius elaborates that trustworthiness is considered the most sought-after trait while employing someone. The qualities like strength, ability to flatter, or eloquence matter only when one is trustworthy. Good governance flourishes when one person can rely on someone. In the Analects, Confucius urged his disciple Tzu-Kung that good governance depends primarily on the easy availability of food to feed its population, military prowess to protect its people, and trustworthiness reposed on the ruler. All these three pillars are essential, but If the people do not find the ruler trustworthy, the state will not stand. Trustworthiness, righteousness, ritual propriety, and wisdom are strong virtues. However, trustworthiness is the most sought-after virtue because the insurance business is woven around trust.
Onora O’Neill believes that one can inspire trust by enacting two things, i.e. more accountability and transparency. However, both elements that constitute trust are in short supply; as a result, there is a crisis of trust. The lack of trust affects business transactions and many things in society.
The insurance contract thrives on trust and is fiduciary in nature. Section 17 of the Marine Insurance Act 1906 casts the duty of good faith on the insurer and the insured. The duty of Good faith requires that Insurance contracts are of utmost good faith, which means both the insurer and the insured must deal honestly and transparently during their contractual relationship.
This duty of good faith also extended to the insured’s pre-contractual information duty. Any breach of this meant the avoidance of the contract itself. The pre-contractual information duty has changed in the Consumer Insurance (Disclosure and Representations) Act 2012 (‘2012 Act’) in consumer insurance and the Insurance Act 2015 (IA 2015) in non-consumer insurance.
The 2012 Act abolished the pre-contractual duty of disclosure for consumers and substituted this with the duty to take reasonable care not to make a misrepresentation.
Similarly, The IA 2015 (UK), applied to non-consumers, swaps the insured’s pre-contractual information duty with the duty of fair presentation of the risk. The change, in turn, imposes two duties on the parties to the contract: a duty not to misrepresent any matter relating to the insurance – i.e. a duty to tell the truth; and a duty to disclose all material facts relating to the contract – i.e. a duty not to conceal anything relevant. The essence of trust remains the soul of the insurance contract. Both recent changes have modernized the laws that existed before the enactment of these acts, keeping the people’s changing aspirations in mind and inspiring more confidence and trust. The concept of trust is, therefore, dynamic.
The changes succinctly highlight the importance of trustworthiness in insurance transactions. There is a positive correlation between trust and purchase of insurance. The higher the trust, the higher the probability of more purchase of insurance policies
The Geneva report came out with the economic definitions of trust. It is viewed as an ‘institutional economizer’ that removes all barriers of suspicion, allowing unhindered business activities based on mutual trust, thereby cutting transaction costs.
The digitalization has changed the trust landscape considerably. Most consumers look for a trusted digital platform. The inbuilt trust in the digital platform inspires great confidence among buyers and sellers. The presence of cyber fraud, however, dilutes trust in digital platforms. Most people, particularly senior citizens, are very chary of the digital platforms owing to rampant digital frauds.
Education and insurance awareness must address the three pillars of trust: accountability, transparency, and regulation. Accountability fosters trust as parties involved in transactions perceive that promises made will be honoured. In insurance, buyers pay a premium upfront, hoping to be provided with services during financial stress. Similarly, the seller of the insurance policy takes a calculated risk with the hope that there will be no aggravation of the risk by the insured. Simply put, the nature and the texture of the risk undertaken by the insurer should remain more or less the same. As customers, the premium they pay depends on the trust transferred to them. It is the cost of the trust. The trust sought by the customer is not merely the timely and adequate payment of claims but also, in the digital world, the privacy of the personal data shared by him. The contingent promise to pay – reflected in terms of distant future or unspecified time of the occurrence of events makes an insurance contract very uncertain. The level of trust balances this uncertainty and inspires confidence among prospective buyers. Therefore, trust is the soul of an insurance contract. Transparency also plays a vital role in building trust. This author firmly believes that the policy wording should be framed in simple, unambiguous language that ordinary people could understand. The policy wording should be straight and incapable of different interpretations. Most insurance purchasers find the policy wording very cumbersome and are dissuaded from reading it correctly. Laws and regulations should be drafted with a customer-centric mindset. Treating customers fairly should be the spirit behind all regulations. The example cited above manifests how rules and regulations are being modernized to keep abreast with the changing dynamics.
Insurance education is the need of the hour. The ever-increasing insurance ecosystem requires a talent pool of professionally trained workforce. The domain knowledge is abysmally low; few universities or education institutions teach complete insurance courses. They just offer a few subjects as electives in insurance; as a result, the demand for trained professionals is greater than the supply. Universities should come forward to introduce insurance and risk management courses for undergraduate and postgraduate students on a bigger scale. The insurance industry should partner with universities in this novel initiative of the Industry-Academia Association.
Insurance education and awareness will help curb rampant misselling that erodes people’s trust. Awareness generated through proper education can effectively address the problem of trust deficit. Adequate insurance education can build and restore confidence and trust and help bridge the yawning protection gap.
We are in an age where customers are sovereign. Gone are the days of muted and choice-strapped customers standing in long queues waiting for their turns to come. Customers are knowledgeable and demanding today. Insurance businesses globally suffer from huge trust deficits, resulting in unsurmountable protection gaps. The gap has been widening over the years- certainly a significant cause of concern. To establish trust in a relationship, it is imperative to provide all customer-related information. Assuring complete transparency in the face of asymmetric information is a daunting task.
Technology has brought forth solutions hitherto not visualized. InsurTech provides a way to expand the client bases with striking speed and enormous trust and to bridge the worldwide protection gap in most economies. By creating an excellent customer experience, technology can be influential in minimizing the trust deficit. A recent example of a total loss claim in motor insurance paid on the spot within five hours of the accident with the help of technology instils an incredible amount of trust. Similarly, cashless payments in health insurance have gone a long way in fostering customer trust. Customer awareness, followed by extensive education, is the way forward.
By Prof(Dr) Abhijit K.Chattoraj, Chartered Insurer – Professor and Director -Executive Program and Consulting – IMS Unison University, Dehradun, India.
