Education and Transparency

I read the Wall Street Journal daily, and one of my favorite wealth writers, Jonathan Clements, recently passed away. Another columnist, Jason Zweig, wrote two articles about his passing. One included several insightful passages Clements had written regarding human psychology and investing.

One that hit home, from April 8, 2007, was, “Think you’re immune to confirmation bias? If you are a regular reader of this column, ask yourself this question: Why do you keep reading my articles? Sure, I like to think I offer brilliant financial insights served up in peerless prose. But the reality is, I am not Warren Buffett…I peddle a limited array of prosaic ideas…So why do you keep reading? It’s no great mystery. You don’t read my columns because they open your eyes to the financial world. Instead, you read them because they confirm what you already believe. There is nothing wrong with this – provided you and I have truth on our side. But what if we don’t?”

I had to reread this after a recent presentation because a very insightful audience member said I had given a very controversial presentation. From my perspective, my entire speech consisted of industry facts, coupled with explanations to provide context and understanding. The facts spoke for themselves, and I’ve never understood why facts are controversial. Facts are objects like rocks. Let's not confuse dislike of a fact with the idea that the fact is controversial.

I asked him why he considered my presentation controversial, given that it presented facts that were mostly insurance company financial statements filed with the NAIC and then compiled by A.M. Best. He advised that people in our industry prefer not to discuss difficult topics. I thought, “Why would anyone pay me to speak if all they wanted was confirmation of everything they already knew?”

In reading Jonathan Clements’ words, my response was entirely naïve. Of course, many people do not want to learn anything new, not really. The audience wants the presenter to tell them how smart they are by confirming their thoughts are brilliant.

We further discussed how this industry has “Groupthink” patented and how people move from one company to another, leading all companies to think the same.

I'm not very good at telling people what they want to hear. My presentation described insurance carrier financials in a straightforward yet distinct manner. Transparency is good for the industry, and transparency requires education. The most intelligent people in the room will want to hire me because they inherently recognize the value of my insights, even if I don't confirm their desired belief. For the others, hopefully, they enjoyed a controversial program that they probably couldn't understand.

Education and transparency are essential because I recently heard an insurance company CEO describe insurance company financials incorrectly. I have zero doubt the CEO believed he was right, but he was not. His explanation did not consider key financial elements, and I am positive that the company’s executive team made crucial decisions based on that inadequate understanding of basic finance.

Education and transparency are required to fix this industry. Circling back and forth between carriers with confirmation bias that the same seriously flawed financial management makes sense is irresponsible and aids plaintiff attorneys. For insurance companies to complain about nuclear verdicts after making almost three times the average profit last year, more profit than ever in history by nearly two times, is a losing proposition.

Moreover, transparency is required to explain this hard market. With a $170 billion profit, carriers should have left most of it in surplus rather than distributing it to shareholders and executives, in some cases. That would have materially improved the surplus deficit, which is at its lowest point in at least a decade (1.21 surplus to NPW). I am sure your carriers, if you are an agent/broker or your employer, if you work for an insurance company, clearly articulated how much money the company made and how they left those profits in the company to support growing future premiums. They did, right?

The truly controversial aspect is asking that question.

Why should you listen to someone who is not a Warren Buffett was a question that Clements seemed to think through often in his columns. The Wall Street Journal has a few other financial writers who provide confirmation bias for me. I’ve often wondered why I follow someone who is not a billionaire, giving advice when, if they were so smart, they should be charging a lot of money for their insights. Why should you listen to me offering advice regarding carrier financials and how to use that information to manage your carrier relationships and predict their future?

Because real-world, and even “controversial,” information is required to develop working solutions and strategies. I’ve conducted in-depth research of carrier operations and financial stability for over 30 years, and I’ve been instrumental in assisting top agents and brokers increase profits, avoid costly surprises, build competitive advantages, and decrease E&O exposures by identifying the most effective carrier strategies.

I enjoy helping my clients see the reality of which carriers will best support them with the tools to grow profitably, even if that means shining a bright light on financial facts. I enjoy working with insurance carrier executives, too, if they are willing to break their groupthink and override their desire for confirmation of their existing thoughts rather than using reality to chart a better course.

I strongly encourage everyone to read Jonathan Clements’ writings. Besides the Wall Street Journal, he founded humbledollar.com and authored many books on personal finance. A lasting theme throughout his writings is: don’t believe the hype. For insurance, read the financials, the numbers, the facts. Disregard the hype and so-called experts who do not truly understand how insurance company finance works.

---

NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.

None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.