Sep 12, 2013 3 min read

Insurance and Innovation – Part 2 – why ethics is a vital ingredient

What was interesting about the PwC survey I mentioned in the preceding post was the way in which it aligned innovation with the culture of their firms, and in particular, the culture for ethical behaviours. Those global insurance CEOs recognised that if their corporate culture didn’t emphasise the importance of ethical behaviours, then their capacity for innovation would be diminished. Let’s explore that relationship between innovation and ethics a bit more.

First off, the relationship between innovation and ethics has a checkered history. Many people can point to innovations that don’t score high on ethics: derivatives for example, referred to as ‘financial weapons of mass destruction’ by Warren Buffet. Some in the insurance market might point to referral fees as well. So innovation per se can’t be said to be ethical.

Hopefully, insurers aren’t seeking to innovate along the lines of referral fees again – what one might call a ‘bad innovation’. So how do you facilitate ‘good innovation’ in insurance – one that brings not just profit to the company and its shareholders, but also builds trust in its brand, in the market overall, and with customers and society in general?

One way of generating innovation that is more likely to be seen as good than bad is through an open approach to how you foster and manage it. Innovating within a closed community presents dangers of too much ‘group think’, of an environment dominated by the echo of stereotypical thinking. Innovation, especially in today’s world of big data and the internet, tends to germinate and grow more successfully in open working environments. This is because openness encourages greater diversity of input, better dialogue, more critical thinking and more honest appraisal and feedback.

Yet commercial pressures can often make open working environments feel rather uncomfortable. How do you achieve an environment that is open enough to encourage good innovation, while also being protected enough to safeguard all those good ideas? Suffice to say, there are established ways of steering round this conundrum, but they’re best explained by better people than me (these people for example). What they will tell you is that it’s difficult to achieve that balance if there’s uncertainty about the honesty and integrity of anyone wanting to be part of the process.

You want potential business partners circulating round your firm to see positive and encouraging signs of how you might work with them. That means not only having a culture that promotes ethical behaviours, but saying something about it that will tell such people that you’re a firm they could do business with. For let’s be honest about where innovation invariable comes from: the smart people with smart ideas probably aren’t working for you right now. They’re usually working in small start ups or boutique consultancies, keen to scale up in partnership with an established firm, but wary of being swallowed up and then spat out in the process.

So, to recap, ethics helps build an open environment within which good innovation is more likely to flourish, and it helps firms to attract and engage with innovative thinkers. To these we need to add a third ingredient, that of a leadership team that is active in its support for both ethics and innovation within their firm.

In calling for greater innovation within their firm, or within their market, insurance CEOs need to remember that this is a task that cannot be delegated. They not only have to recognise the need for changes in processes and behaviours, but also take up their very considerable responsibilities for making these things happen. In very simple terms, they need to ‘walk the talk’.

I’ve written in greater depth on understanding and influencing ethical culture in this paper, so I won’t go into anything of depth here. Suffice to say that the processes by which firms can best explore their ethical culture are remarkably similar to how innovative ideas often take seed and germinate. It’s what we describe here in the UK as ‘two birds with one stone’.

Claims faces a challenging period over the next couple of years. Yet the time is also very ripe for some transformative change. Ethics can help fuel the innovations needed to reinstate the reputation that claims operations deserve. Let’s hope that those opportunities are seized.

Duncan Minty
Duncan Minty
Duncan has been researching and writing about ethics in insurance for over 20 years. As a Chartered Insurance Practitioner, he combines market knowledge with a strong and independent radar on ethics.
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