Insurance underwriting and broking in the London insurance market: t he role of reputation and trust in the insurance decision making process.

Abstract

The importance of reputation for corporations is increasingly acknowledged and it is generally recognised that a good corporate reputation can create a competitive advantage. The even higher relevance of reputation for the insurance sector due to the intangible nature of its products is also accepted. Trust is also seen as vital for business transactions in general and for insurance transactions in particular. However, based on the literature review there is no generally accepted definition of reputation and trust. There is also no consensus how these two concepts differ or how they interact. This thesis argues that reputation is created through the evaluation of previous actions by individuals and organisations and can function as information surrogate, which in turn enables individuals to trust or mistrust a partner in a transaction. Trust is seen as a means of reducing the complexity of decisions under uncertainty.
This study adopted a qualitative research methodology with the aim of exploring what role reputation, but also the similar concept trust, plays in the insurance underwriting and broking process, with a particular focus on the London insurance market. In addition, the consequences for business relationships between underwriters and brokers as a result of a negative reputation were investigated. Another aspect of this research was to find evidence whether the concepts of reputation and/or trust can be considered as heuristics in relation to decision making under uncertainty thus reducing the complexity of decisions.

Through the interviews conducted and the web-based surveys there is evidence, albeit inconclusive, that reputation` and trust are part of the decision making process of insurance underwriters and insurance brokers alike. A positive or negative reputation impacts trust and hence impacts business relationships in the London Market. There are also indications that the reputation of brokers influences how underwriters assess the risks presented by brokers. During interviews a number of underwriters stated that they would trust the verbal representations of brokers if they have a positive reputation rather than reading through the entire submission document, which can be quite large. In addition, there is evidence that underwriters might be more inclined to accept new risks from brokers which they believe they can trust. Another conclusion is that the way insurers handle claims significantly influences how brokers place business in the London Market, especially for long-tail business. This highlights the intangibility of the insurance product and hence the need for insurance intermediaries and buyers to rely on reputation as part of the decision making process.

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