When I was a mere child of almost 5 and living the country life in rural Ontario I learned that a minor indiscretion compounded by an oversight in delivering the whole story to a superior (Mom) could earn painful discipline. My indiscretion (in those days my vocabulary would have labeled it a mistake) was to play a very realistic game of “cowboys and Indians”. Today it is more likely aliens and earthlings given the difficulty in playing any politically incorrect game. But I digress from the games of the early fifties.
I, always one to like to play the oppressed, was the “Indian” and my neighborhood friend played the cowboy who unfortunately was my captive. I stepped over the line of make believe when I tied my friend to a tree and started the smallest of fires under my captive. It always worked out in the stories I was told so how was I to comprehend this was likely to be painful in reality. Another neighbor saw my activity and at the first sign of smoke decided the game had gone too far. Fire out. Scolding from kindly neighbor. Friend running home for the comfort of his mother’s apron (virtually all mothers worked only in the home in this postwar era). Me left to contemplate reaction of parents to my indiscretion.
My sanctity of my bedroom at home was the place to be for some quite reflection on the events. Passing Mom in the hall and responding to her “What’s happening?” inquiry I nonchalantly said I needed some rest and nap after playing with my friend. Mom knew immediately something was not quite right. Ross never took unforced naps! Within minutes of my respite Mom had found out from the grapevine in the neighborhood (the same one that was reengineered into the insurance business) of my deviant behavior. Two sins were committed in my parents’ mind. First the trick with the matches and second the failure to be forthright in my description of the mornings’ events.
Business brings many a similar lesson. Compounding a first mistake with a failure to communicate the complete story, well before the inquisition, is not unheard of in our insurance business. In fact I have seen that being very proactive with one’s own “spin” on a story can actually make the perpetrator of an error or oversight look like the hero and thus put immense distance between themselves and the problem. Some would refer to this as a failure to take responsibility for their actions but it seems most of those most adroit at this skill reap large personal gains, who am I to say it is wrong?
In the early 70’s there was a very interesting case on a purported oil and land baron in Oklahoma. The gentleman was applying for a very big policy (in today’s inflated times it would equate to an application for $100,000,000). On the first go round the general decision was to decline the case because of overinsurance. To make a long story medium in length the persistence of the lead company underwriter convinced the principle reinsurer to accept a part of the case as a favor to what was a very good automatic account. Using the leverage of this one acceptance the large case finally found all the needed facilities and it was issued. The issuance was wrong as there was no real justification for the amount and the underwriters failed to completely seek all necessary evidence.
As the claim unraveled we learned the insured was all but bankrupt, dubious debts to various and sundry entities (both legit and suspect) and medical evidence that was if my memory serves me right was done on someone(s) other than the insured. As an industry we jumped in with the theory of suicide to try and lay the groundwork for not having to pay a claim on a big case that occurred in the 11th month after issue. The suicide theory died, as it became clear to senior insurance personnel that two (2) bullets in the head from the back were not common in suicide by self inflicted gunshots! I was young at the time and yes one of the underwriters who saw the case, which meant I was bewildered at our industries floundering to get off the hook. We made a big mistake and were compounding it by hastily hiding our own oversights. Every senior officer in our business should read “The Mullendore Murder Mystery” to see how we are an industry of trust but also an industry that loves to skirt our responsibility at times of trouble. I say skirt because we generally pay up much to our glory but at times we do it only after ill conceived excuses.
All the famous or infamous cases like Mullendore, Johnson, Smith and Demeter involved insurable interest and overinsurance. All made it through our checks and balances because we are not perfect as an industry. Each though cost often more in litigation than the face amount! We won but we lost! In each there was immediate denial that perhaps our process for risk selection had failed which lead to some skillful spin doctoring as time progressed.
Not only did the individual case scurry through our process but hundreds and thousands have made it abusively through at times. Decades ago but within my time we had the story of a wonder company, a hero of the unsung, a model of sales prowess and a marketing genius. “Equity Funding” was the darling of the North American industry. It out sold projections. It could do no wrong. Reinsurers, those cagey paragons of virtue knew good when they saw it (see it in some current situations but that is a story to hot to print prior to age 55).
Reinsurers through very lucrative coinsurance allowance that bordered on the insane (tell me again how you can give me $1 and I can give you back $2.50 and I am the one who will get rich?) . My youthful recollection was that every reinsurer of note was lined up to feed the selling machine and be part of the gold rush (an historical BreX). Again to make a long story short (read the book) when the farce was exposed every gullible reinsurer pleaded every conceivable excuse in the books except the correct reason. Reinsurance greed like all of man’s greed made decision making foggy at best. Equity Funding was out of character for its time but the story was one of reinsurers’ greed and the media wanted to believe. Tens of millions of dollars were lost and one would like to think a lesson well learned.
The Equity Funding story gets repeated almost yearly as a new crop of industry marketing leaders blindly close their eyes to the latest pitchman who is selling far more than normal and becomes an overnight top producer/broker/agency. The two bit player may not use the phone books as profusely as Equity Funding but the scheme to defraud us is the same. Find a gullible company with one or two greedy decision-makers well placed and the commission system heaped and overflowing, will reward you for a short period.
Again the rule is if it has been done before it will be done again. Different players not steeped in personal exposure to the game will play the role of “sucker” in it and spin a story of how their situation was different. Why not admit you were duped like the earlier victims and quit the spin city rhetoric. Just like the fire and the subsequent deletion from my mornings activity became a double penalty, the hiding or minimization of our industry errors just makes us look stupid in addition to gullible. I am even told that there are numerous examples of producers doing wrong but in reference checks the producer was merely one who left the company.
When I recently heard some inside information about a recent episode of marketing skullduggery which was labeled I believe “Project bad Apple” I remarked that we were now working on fruits for code names since we have used up all the animal names. The scams the same just the victims are new. When Project Banana hits the industry it will have a slightly different bend to it but it will be the same old rotten fruit. Sometimes man is committed to making the same mistakes repeatedly just to keep the story fresh.
So much trust from consumer to board of directors I often wonder how there are any companies left to merge or be bought by banks. When we do get mistreated by the rare abuse of trust we will of course be able to spin a story and promotion that exonerates us as individuals while pointing the proverbial finger at others who are not as quick with the story telling. My first response back when Mullendore was killed and I was asked if as a bright young risk selector I accepted the case on behalf of that long gone reinsurer M&G was what you could expect. I many a time said I declined the case on Mullendore refusing to take one penny for M&G Canada. Wow my peers in North America were very impressed. Unfortunately even if they didn’t ask I would volunteer the whole story. That was for fear of Mom! The fact was the head office of M&G in London had already committed the full retention and thus I, sitting in Canada, could not accept any part of Mullendore. The abridged version of my action is the one that today lacks the forthrightness of the full story.
Every time I listen to a “spin doctor” weave a tale it reminds me of my minor tale that lacked credibility and how only a mother could see through it. My time as fire starter was short lived. Red seat from “the strap” left the right impression but today we believe in sparing the rod and thus at times ruining the industry.
