We’re all contractualists now…

The recent awarding of the 2016 Nobel Prize in Economic to two individuals for their work on contracts and how they affect the division of power in economic relationships, brought to mind the broader philosophical question of the how not just the wordings and forms of contracts matter, but also how they are created.

“And what, pray, is a “contractualist”; and what on earth has it to do with the world of (re)insurance?” you may well ask. Bear with us, as we take an excursus into the importance of trustworthiness- which is still a concept at the core of commercial and personal relationships and contracts of (re)insurance.

Most, if not all of us, would wish to be considered trustworthy, as well as moral beings. But what is moral, and how does it affect decision-making, or the perception of trustworthiness?

While philosophers may parse the concept into minute segments, there now tend (at least in Western philosophy and neuroscience) to be 3 main schools of thought about how an individual makes moral decisions and thus signals trustworthiness:

– Deontological: there is a set of rules that one cannot break (e.g., Thou shalt not bear false witness)
– Consequentialist: one ought to maximize the greatest good for the greatest number of people (as expounded by, inter alios, the Benthamite utilitarians)
– Contractualist: respecting and understanding the rights and duties of others (Do unto others as you would have them do unto you)

So, in the real world, why do nuances of moral behaviour matter? Why should one care about such matters in a system that tends to take profit maximization as the goal of a business, because that is “clearly the best outcome”.

It matters, because it turns out that people tend to trust most those who follow a contractualist approach: as social beings, we care about fairness, and the responsibilities and duties that we have to each other. Trying to “put one over” on someone does not go down well, whether in a social or business context.

Of course, because we are human, and thus emotionally and psychologically complex, we apply behaviours or thought processes that can encompass one or more of the 3 systems (unless we are narcissistic sociopaths) and these affect our decisions; but the contractualist approach seems to align more closely with how most people behave and expect to be treated.

Bringing all this back to the world of (re)insurance, terms such as “pactum meum dictum” and “uberrimae fidei” are considered truisms; and too obvious even to require explanation. Yet, we would argue that they are the distillation of a contractualist approach; and evidence of the fact that the industry does not seek simply to benefit from “filthy lucre”, but rather to provide a service to the societies in which operates, while deriving a fair return.

All this may sound a little too “soft” and “touchy feely” for some of our readers. We can almost hear the harrumphing! However, at Awbury we are firmly of the opinion that not only does a proper alignment of interests matter, but also that all parties should derive a clear benefit from any transaction or relationship. Ultimately, that engenders trust- and trust is what actually strengthens and builds a franchise and enables us to generate repeat and scalable business- which is more efficient and ultimately more profitable. [Yes, we do believe in the “P” word!]

And one final thought: there is also an Aretaic School, based upon Socratic concepts of the Good or Virtuous, but that is a topic for another day!

The Awbury Team


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