This is the first in a series of posts about the ethical issues associated with insurance claims. I’m going to start off with what is probably the most significant of all such ethical issues, information asymmetry.
We all know that insurance can be a complex product. In a business to business context, this complexity is not usually an issue, for with the involvement of brokers, both sides have relatively equal levels of insurance knowledge. In personal insurance however, this complexity can create all sorts of difficulties.
The chief difficulty that this complexity creates in personal insurances is an asymmetry of information between the insured and the policyholder, with the former knowing a lot about the insurance product and the latter knowing very little. In itself, there’s nothing unusual about asymmetries of information like this, for we engage with people with specialist knowledge on an almost daily basis. However, the nature of the insurance contract, as a promise of financial reimbursement conditional on the circumstances of a loss, makes information asymmetry an important ethical issue. And it is an ethical issue that claims departments can be particularly exposed to.
Let’s put it in some context first. Short of every personal lines policyholder holding an insurance qualification, information asymmetry will always be present between insurer and policyholder. So the ethics of information asymmetry lie not in how you avoid it (because you can’t), but in appreciating where it’s important and how you then handle it.
One of the reasons for professions evolving and becoming part of today’s business landscape is in recognition of information asymmetry (think lawyer, accountant and doctor). It’s the duty of every professional, of whatever ilk, to manage that information asymmetry with fairness and skill. How well they have done this over the years has gone a long way towards building the reputation of each particular profession.
A claims department that sees itself as part of a professional organisation, offering a professional service to its customers, needs to put information asymmetry, and all its influences and consequences, at the heart of its relationship with the policyholder. If you’re a member of the Chartered Insurance Institute, or work for a firm that is Chartered or has signed the Aldermanbury Declaration, then this is an issue that should be central to your professionalism.
Policyholders sometimes accuse insurers of exploiting their lack of knowledge about insurance and in some cases, they may have a point. However, it is more often the case that theyfeel
exploited, rather than actually were exploited. Those feelings of exploitation are symptoms of that imbalance of knowledge and the sense of powerlessness that can often accompany it. So dealing positively and proactively with circumstances in which that sense of powerlessness can arise will go a long way to earning the trust of the insurance buying public. With claims often being a complex mix of money, emotion and uncertainty, claims departments are ideally placed to taking this sort of initiative.
In the second post about ethics, claims and information asymmetry, I’ll home in on some examples and outline how insurers can take some first steps to managing it.