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Caffery, Oubre, Campbell & Garrison, L.L.P.
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Murder will out and insurance will pay

 

In the last few decades, we have seen the rise of marketing culture, dominated by a "Mad Men" ethos, where any product can be sold, no matter how harmful or dangerous, as long it is properly "positioned" within the market place. This line of thinking is not without its costs.

If you are a large corporation, and "questionable" behavior becomes known, significant expenses often follow. The recent VW emissions scandal has caused cataclysmic problems for the company, including the resignation of their CEO, the vanishing of $30 billion in market value from the stock price and possible fines by regulators measured in the billions of dollars.

 

This and other incidents corporate misbehavior apparently provoked comments from the Chairman of Lloyd's of London, to warn that this is eroding trust in business. Insurance companies are often a good barometer of what is actually happening in the world, as opposed to the marketing perspective promoted by politicians and PR firms.

This is because insurers and the insurance business cannot afford to be fooled by clever disinformation campaigns and manipulated statistics. Large-scale wrongdoing will inevitably come out, and insurers often have to pay the bill. The numbers that matter for them is what they have to pay in claims.

If they detect a growth in claims for storm damage from summer thunderstorms in Louisiana, nor'easters in New Jersey or D&O malfeasance issues, they are going to increase their rates for insuring those risks, regardless of the politics of anyone who lives or works in those areas.

Lloyd's chairman is concerned that a lack of corporate responsibility will lead to increased regulation, which he believes will be ineffective. He notes that business needs to show greater responsibility, because insurers will pay in the end.

He also recognizes that this will be better for the insurance  business, as preventing claims before they happen is the best way for insurers to limit potential losses.

 

Source: Bloomberg.com, "Lloyd’s Chairman Criticizes Profit-Hungry Corporations, Which Risk Eroding Trust," Sarah Jones, September 29, 2015

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