We have all seen the humorous rule of cricket description.
You have two sides, one out in the field and one in. Each man that’s in the side that’s in goes out, and when he’s out he comes in and the next man goes in until he’s out. When they are all out, the side that’s out comes in and the side that’s been in goes out and tries to get those coming in, out. Sometimes you get men still in and not out.
When a man goes out to go in, the men who are out try to get him out, and when he is out he goes in and the next man in goes out and goes in. There are two men called umpires who stay all out all the time and they decide when the men who are in are out. When both sides have been in and all the men have been out, and both sides have been out twice after all the men have been in, including those who are not out, that is the end of the game!
Insurance as a product is just as easy to follow as that description above. What do you buy? After all you never physically see any new product arrive in the post, nobody buys it gift wrapped for someone for Christmas, you cannot test it out or have it in a different colour to someone else, you can’t bend it, touch it, smell it or taste it. But what you do have is a promise. You have a promise that you have transferred risk. It is simple in principle yet as a customer you work blind. You buy into a promise.
An insurer will also be working blind. A customer comes to an insurer for a quote, the insurer asks a series of questions and a quotation is offered and ultimately the insurer also buys into a promise – that the customer is telling the truth. We trust each other.
But why buy the insurance? It’s that element of uncertainty. The not knowing. There is a multitude of things that could go wrong. This is the true reason; the risk of damage brings with it the risk of having to pay for repairs. If the customer were happy to face that risk then they would not seek out insurance. If they wish to transfer the risk of the cost of potential damage to an insurance company – then they purchase insurance. But lets face it, who wants the hassle of the damage in the first place.
So my friends, with that in mind, let us recap, a customer gets a quote for insurance not being able to fully test the product offered, the insurer gives a price to transfer that risk whilst not fully knowing the property being quoted for, both are working blind.
This is on the basis that the customer really doesn’t want the product in the first place as would rather not have to suffer the loss that would trigger the insurance!
It’s as simple as cricket! What were those rules again?
Blog – Paul Ricardo 31-10-11