Knowing the cost to serve each client really helps
Transaction issues that may arise

The industry, versus companies in the industry

The New Zealand Herald coverage of RBNZ research and recent media releases reminds me of one of my favourite jokes about economists:

Three economists are taking a day off at the archery range. Being largely desk-based folks they aren't very good, but they're having fun. One draws their longbow shakily, aims, shoots, and misses the target by a metre to the left. The next draws their bow with effort, aims to the right, shoots, and misses the target by a metre to the right...
...the third economist then shouts "bulls-eye". 

So when a report worries about both high levels of profitability (applicable to some companies) and lower solvency margin (applicable to different companies) and the media reports about both talking about 'the industry' it is this use of an 'average' that is confusing for readers. How can the sector make too much money and run down solvency capital? It doesn't. Some companies have low margin businesses and tend to have falling margins of capital above minimums and others have big margins and have stable or rising levels of capital. The story is different for each company.  

The question of insurer efficiency, and in aggregate insurance industry efficiency, is an important one. It is complicated too. Unpacking it is hard and unlikely to be done in consumer-focused articles. Take just one issue: underwriting information. Major gains in insurer efficiency could be made is access to medical information, much like banking information, could be made more available at the discretion of each customer. If permission were granted to access ministry of health databases the results could make underwriting so much easier, and therefore quicker, and cheaper. It could be convenient, fast, and accurate. Usually we only get one, or sometimes two, of those three. But when the question of enhanced access to medical information is raised, even if that were controlled by the customer, the reaction from media is usually negative. So we are stuck with memory-test questionnaires that place disclosure burdens most heavily on the customer. 


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