A number of ethical challenges are circulating around insurance. Managing them so that they don’t disrupt the insurer’s business model requires expertise and experience. Yet how well resourced are insurers for this? As we head towards 2023, I set out some parameters for answering that question.
An immediate reaction of some insurance people will be that their firm doesn’t feel exposed to such challenges. You can think of this in two ways. Either those firms don’t understand the challenges well enough and so aren’t picking up the right signals. Or they have indeed avoided the practices being challenged, in which case they then need to evidence this for key audiences.
So who are those key audiences? We can look back at the pricing super-complaint and see how regulators, civil society groups, parliamentarians and the media were all involved. Investors will have wondered what had stirred all this up, particularly after some pretty cutting comments about the sector in business papers like the Financial Times. They wouldn’t expect the same mistakes to happen for a second time.
Avoiding the type of challenge that disrupts business models (as the super complaint did) comes down to understanding the issue, who is driving it and the signals that move the light from amber to red. My question here is: do insurers have the right ethics resource to doing this?
I’m going to set out some very rough rules of thumb for judging whether insurers have the right ethics resource. And by ethics resource, I mean people on the ground, within the firm, understanding both what is happening within the firm and what is happening outside of it. And by people, I mean full time (or equivalent) people, with experience and skills for handling big ethical issues properly. And just to make the point even more, by skills, I mean education, qualifications or an equivalent level of ‘grandfathering’ experience.
Let’s start. How many people do you have working on compliance? And how many people do you have working on privacy?
Add those compliance and privacy people together and then divide it by the number of people you have working on ethics.
What does your answer look like?
If your answer is ten or less, then congratulations. You should have the capacity and capabilities to deal with the ethical challenges and complicatedness that lies ahead for insurers.
If your answer is between ten and twenty, then well done but be careful. They should be able to deal with what’s coming, if they have strong support from senior management.
If your answer is over twenty but below infinity, then you will need to decide what to address and what to drop. What’s more, you might not have the right resource to make that judgement.
Then there are those insurers whose answer is infinity. There’s a saying in maths that when you try to divide by zero, things stop making sense. And in today’s market, having no one in your firm that has the experience or the skills to handle big ethical issues just doesn’t make sense.
It doesn’t make sense because there are primary challenges like discrimination and fairness facing the sector, plus secondary challenges like autonomy, consent and secondary use influencing views and concerns. Add in perennial challenges like handling conflicts of interest properly and what you’re left with is a sector needing, to use an analogy, to navigate carefully through troubled waters. Someone who understands navigation seems like a no-brainer (even though I’m someone bound to say that).
Let’s flip this round and consider why some insurers may not feel the need to have in-house dedicated ethics resource. In essence, let’s weigh up alternative forms of ethics resource.
There’s the ethics training that the insurer might do, and similarly, their code of ethics and some form of ‘annual sign-off’ of the code by staff. This has a part to play to building the firm’s ethics capacity, but in short, this is a capacity that works in a supporting role to a more focussed resource. Without that more focussed resource, this is too diluted and reactive to count on its own.
Then there’s the frameworks and standards that insurers have a tendency to adopt or join with others to support. These point to support at senior level within those insurers, but the problem often then encountered is generating meaningful outcomes from those commitments. That’s invariably down to lack of the right resource.
We often see the big four consultancies taking an interest when ethical challenges come to the fore. The problem here is the conflict of interest that’s invariably present, given that those firms can often been the ones advising insurers on the strategies and operations from which the challenges have emerged.
Am I being a bit hard here? I don’t think so. Challengingly realistic is how I might be pursued to describe it. There are of course a lot of good people in insurance, plus a strong tradition of professionalism. However, being challengingly realistic about ethics could not be described as a sector strong point.
We have seen people being recruited and promoted into data ethics roles over the last twelve months or so, and this is great. Unfortunately, far too many insurers have little to no ethics resource and so will struggle to read the signals or make things happen.
Over the next twelve months, I expect demand for ethics expertise to grow. The number of such people around is not large, and some have already been snapped up. Sourcing from inhouse has many benefits, so long as they have the capacity to think independently and where necessary challenge the decisions and culture of those they’ve long worked with. Not an easy thing to do.
Insurers need to deal strategically about ethics, before ethics disrupts their strategies.