Insurance firms are changing – new ways of pricing, settling claims and marketing. So, have their codes of ethics been changing in response? My recent review found a distinct gap opening up. Some of the key issues influencing consumer trust in insurance are being missed.
Part of my review of the codes of ethics in use by ten leading UK insurers looked at the particular ethical issues that they addressed. A lot of what I found were the ethical issues that insurance people are familiar with, like conflicts of interest, business gifts and bribery. And that’s great, but at the same time, there were also some ethical issues that were just not addressed at all, or by only one or two insurers.
A lot of what we think of as ethical issues is influenced by who we see as the audience for the firm’s code of ethics. As I explained in the first of these three posts, employees are certainly a key audience. At the same time, customers are too, for your code should speak to employees about the ethical issues that consumers see as important.
Take pricing practices as an example. Only one insurer mentioned fair pricing, and one other talked about the transparency of their pricing. All the other insurers made no mention of this core insurer practice.
The number one trust issue for consumers
Yet this week’s launch of the Chartered Insurance Institute’s Public Trust Index found that dual pricing was the number one trust issue for consumers. And only last February, the regulator’s Director of Competition said that insurers needed to have sound pricing principles in place, to guide the much wider range of pricing decisions such firms are now making.
One explanation for this might be found in a recent comment by the Director General of the UK insurer trade body. Huw Evans said that the way in which insurers and brokers priced policies had “traditionally been seen as an area ‘off limits’, in respect of the regulator’s efforts to make the market work better for consumers.
Pricing has always been an ethical issue that insurers have needed to address. The same goes for claims settlements, broker’s commissions, fraud investigation, adjuster fees and marketing tactics. Those insurers who have made the time and effect to undertake an ethics risk assessment (more here) will have known this all along.
A Group Think Problem
So Huw Evan’s comments point to a ‘group think’ problem amongst some insurers. They’ve just not been seeing some practices as having an ethical dimension. This raises the prospect of the UK regulator’s current discovery work on pricing practices being a more uncomfortable experience for insurers than it need to have been.
And that ‘groupthink’ problem raises the question as to what other common insurer practices have been treated in this way? I’ve said on several occasions in the past that insurance firms have been following an overly narrow view of the ethical risks their business is creating. Yet why is this the case? Surely functions like internal audit and compliance should have been checking this?
What this points to are insurers focussing their codes of ethics on a typical range of acknowledged ethical risks, and only extending this when legal developments like new bribery laws come along. In other words, the ethical issues they needed to address, rather than the ethical issues they should be addressing. Few of the insurers in the review appears to have sat down and given serious thought to the ethical risks that their code needed to cover.
What a code of ethics is there to achieve
At this point, you might be thinking about what a code of ethics is there to achieve. Is it to look ahead in aspirational tones that will lift employee perceptions of how important ethics is? It’s one way of approaching a code, and they make uplifting reading as a result. However, they can also suffer from not really addressing the ethical issues that employees need to tackle to reach those new heights.
Or should a code of ethics address the problems that employees have to be wary of? Some insurers have adopted this style for their codes, and they make pretty serious reading as a result. However, they’re also put ethics into a ‘pot half empty’ place, which I don’t think engages, let along motivates, employees.
I see codes of ethics are at their best when they both recognise the ethical challenges that their firm faces and which their employees and customers are concerned about, AND look ahead on those challenges in aspirational terms. Codes need to remain relevant, in terms of the ethical legacy the firm is carrying forward, and the direction it wants to travel in.
The starting point for many insurers appears to be an ethics risk assessment, to provide the scope of issues that their codes should address. And to avoid the quick sands of group think, an independent voice needs to be added into that process.