If, as the UK regulator emphasised recently, fairness is to be the dominant theme of 21st century financial services, how can it help us make better choices from an array of alternatives? With many business decisions complicated by competing factors, isn’t there a danger that fairness will struggle to have any influence at all, let along dominate.
This simple test will help underwriting and claims managers to weigh up the fairness of competing alternatives. Used in conjunction with the other simple test outlined in the previous post, it will strengthen the critical rigour of decision making within your firm.
Each of those alternatives from which you’ve got to make your choice will result in varying degrees of advantage and disadvantage for those affected by your decision. One set of people will be very well off under one alternative, another set of people less well off under another, and yet another set of people not well off at all under another. In such circumstances, the fairness of a decision is based upon the extent to which it improves the expectations of the least advantaged people affected by that decision.
So, using our flood insurance example as before, the fairness of the agreement reached between the insurers’ trade body and the Government will be determined by the extent to which it has improved the position of those most at risk from flood. Not always an easy goal to achieve, you may think, and indeed, some decisions involve choosing from amongst alternatives none of which are particularly palatable. In such circumstances, you need to examine the alternatives from two dimensions: firstly, under which alternative can the least well off expect to be left in as good a position as possible (in other words, the best of a bad bunch), and; secondly, has a representative range of alternatives been put forward?
Most consumers don’t think in terms of the ethics of this or that experience of financial services. They do however have a keen sense of the fairness of their experience. Perhaps that’s why fairness has become an increasingly popular term for insurers to turn to in their communications. Fairness should however be treated with greater respect, for if overly abused, it will only make consumers even more distrustful of the market overall.
Those of you with more than a passing interest in moral philosophy will recognise the influence of John Rawls in the two ‘sense tests’ put forward here. His theory of ‘justice as fairness’ is arguably the 20th Century’s most important work of moral and political philosophy. It is worth reading, although some find ‘guides to Rawls’ rather more accessible. Read moral philosophy, you may shudder! Just remember that that classic of market economics, The Wealth of Nations, was written by Adam Smith, Professor of Moral Philosophy at Glasgow University.