Insurance is difficult. Many years ago, Scott Peck quoted in his book “The Road Less Traveled” that “life is difficult”. He went on to explain that once people accept that fact, things become a whole lot easier. While simplicity is achievable for people, not so much for insurance.
At its core, insurance is a simple concept. However, just as effective parents learn to separate the child from the behavior, it is critical to recognize that “insurance” needs to be separated from the “administration of insurance”.
Insurance is simple: issue a written document that lays out terms of coverage, premium, exclusions, and conditions and then pay claims accordingly. Right.
And, if you knew a risk perfectly, the perfect system could be created to track the policies issued, along with the corresponding terms and conditions. Likewise, you could track claim activity and pay claims just exactly as the policies had been priced. Wrong.
Administration of insurance becomes very difficult because of one word: judgement.