A few weeks later, the boards come down and a new Chinese restaurant opens on the same spot. Maybe the new owner bought the fixtures and hanging lanterns for a song and reckons he or she can make a go of it. Almost inevitably, the new restaurant fails too. This cycle is often repeated but always leads to the same depressing conclusion: the boards go up and stay up.
What prompts a new owner to try where others have failed? Your guess is as good as mine: a dream, hubris, changing economic circumstances. Who knows? The one nugget of knowledge available--that the place doesn't work as a Chinese restaurant--is ignored. Chalk it up to the American can-do spirit, if at first you don't succeed and all that.
Now consider this. One product has routinely failed to work since its invention: the toaster. A working toaster would offer a wonderful Zen-style concept. It was bread; now it's toast. If you're lucky. Often, it's a charred piece of carbon. Sometimes, it's still bread.
If, miraculously, the first piece is toast, the next and all subsequent pieces will be burnt. Toasters don't work, presumably unless you buy a hotel model for $78,000. And not the front-of-house, roll-on roll-out models. They just keep people waiting 10 minutes to discover that they don't work either.
Yet every toaster manufacturer in the world keeps churning out nonfunctional toasters and the toast-eaters of this world keep buying them, in the hope that maybe this time, toast, actual edible toast, will become a reality. Fat chance.
At least two major industries have an equally appalling track record: aviation and insurance. Airline companies may earn a profit this month or this year, but sure as burnt toast, sooner or later they'll go broke, taking their investors' money with them. The model doesn't work.
The same is true of insurance. With the exceptions of three or four of the past 30 years, the insurance industry as a whole has failed to make an underwriting profit, let alone earned net income. Sure, your company may do well this quarter or this year, but sooner or later, it'll go broke and take everyone's interests with it. The model doesn't work, at least not as currently practiced.
Why? All the same reasons the Chinese restaurant doesn't work, only more so. What does an insurance company sell? Its experience. What do many insurance companies learn from their experience? Nothing.
It takes incredible hubris to believe that you can run a giant organization, an equally massive amount to do so and apparently the same amount a third time over to deny why the company failed.
I mention insurance but the reality is broader. More than half of all companies fail before they are five years old. Of the 500 largest U.S. companies in 1980, only 202 still exist. A handful of companies survive for centuries and then Nick Leeson or subprime mortgages come along and a Chinese restaurant opens where the bank used to be. Then that fails and we're back at the first paragraph.
Nothing lasts and maybe that's a lesson insurance executives know. Certainly, underwriters do. They often write any old contract that comes along, collect a fat bonus and then split. Obviously, if I knew how to run an insurance company, I'd do it. I don't. And nor, history tells us, does almost anyone else. Maybe they'd do better making toasters.
ROGER CROMBIE is a Bermuda-based columnist for Risk & Insurance®.
March 1, 2010
Copyright 2010© LRP Publications