Sep 19, 2017 3 min read

6 Reasons why Marketing is a Significant Harm Function

The importance of marketing to the success of an insurance business is now widely recognised. This is down not just to trends in distribution and brand, but to trends in underwriting as well. Moving from the periphery into the heart of a business has consequences though. Being in the lens of regulatory scrutiny is one of  them.

Insurance firms in the UK are currently weighing up new regulations that introduce the concept of a significant harm function. This is defined as a role that might involve a risk of significant harm to the firm or its customers. Some firms will complain about how broad it’s been worded. Others will understand that they’re expected to work it out for themselves. So when it comes to marketing, what factors should those firms want to take into account?

(And if you’re one of the many readers of this blog located outside of the UK, this question is just as pertinent from an ‘oversight’ angle. What are the changes that point to marketing needing greater board oversight?)

6 Reasons for Marketing being a Significant Harm Function

Here are six factors that point toward marketing being a significant harm function …

  1. Marketing is collating a great deal of the data that is now influencing the underwriting of customer risk. As underwriting encompasses an ever growing range of factors (a thousand factors for motor risks is not unusual), the veracity of such data grows in importance. This active pre-qualifying of risk weaves marketing into the outcomes generated by underwriting and in doing so, changes its ‘harm’ profile.
  2. Some of the digital techniques that marketers are adopting to segment consumers introduce a significant risk of biased decisions. Research is raising questions about the fair and equal treatment of consumers from algorithmic decisions. Actively addressing these risks is part of the marketer’s responsibilities (more on this coming soon in a new paper for the CII)
  3. The days of communicating with consumers on a one-to-many basis are ending. All that data now allows personalised marketing, on an almost one-to-one basis. And it’s forever changing and adapting, following the flow of consumer behaviour. How then do you monitor this? The signing-off of a campaign becomes impossible. It comes down to key marketing personnel recognising and responding to a more sophisticated set of responsibilities.
  4. A digitalised marketplace that sees marketers using chatbots to simulate conversations with consumers could have ethical consequences. How those chatbots are trained to engage with consumers introduces mis-selling risks that could scale exponentially unless appropriately controlled. Responding to such exposures will require marketers to learn new skills (more on this here)
  5. Another choice facing insurance marketers is whether to adopt nurturing techniques that are becoming common in other business sectors undergoing digitisation. These techniques use data and personalised marketing to move consumers into a context that would usually trigger a purchase response. This would see firms move from using behavioural knowledge to understand consumers, to using it to manufacture sales opportunities (more on this here)
  6. As marketers increasing take on the role of ‘the customer voice’ within a firm, and as that firm seeks to engage more personally with customers, and as the balance between risk transfer and risk management within some insurance propositions changes, so trust in the firm’s reputation comes under tension. There’s a serious conflict of interest amongst all this, which the board, having responsibility for the firms’ reputation, needs to be sure marketers are managing effectively.
Slingshot Risks and Exponential Impact

So what are the implications of marketing being designated as a significant harm function? More oversight for sure, but isn’t that just commensurate with those widening responsibilities? A small price perhaps for sitting at the top table with finance and underwriting.

What marketers can bring to that table is customer insight.  Yet because that insight comes from new techniques for analysing those vast lakes of big data, it introduces what could be called slingshot risks. Ones that a little algorithmic decision making can send out far and wide across a business, producing exponential impacts.  It’s that capacity for exponential harm that I think makes marketing a candidate as a significant harm function.

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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