The result has been a one-sided presentation of the issues, an image of a leadership that is either evasive or has lost the plot altogether, leading to a collapse of confidence in the stock market.
The PR response could scarcely have been worse handled and, as a result, collateral damage in lost stock market capitalisation runs into billions. But it is not hard to see why. Just a few weeks before Spitzer announced his charges, Lloyd’s director of worldwide markets Julian James delivered a speech in London – ‘Making the world feel good about insurance’ – in which he described insurance as the tobacco sector of financial services. It is hard to think of another well-established commercial sector where such a speech would be necessary.
But insurance is behind the times. James discussed candidly the reasons for its low public esteem – appaling and overpaid management, perennial losses, abysmal client service, overcharging and poorly managed conflicts of interest.
Insurance has always been a closed industry. The incomprehensible complexity of its accounting has shielded it from investor scrutiny, and the absence of outside pressure has made it incestuous, inward-looking and resistant to change. But the world has lost patience. Unless it learns to be accountable,embrace transparency, explain itself and address criticisms, it will find itself on the wrong end of some very restrictive regulation.