Insurance people have a lot on their radars nowadays. The wide range of rating factors and the increased variety of products are behind much of this. Not surprisingly, we start to apply filters to all this information. That however opens the door to an ethical problem called the self-serving bias.
What is the Self-Serving Bias
Research has shown that if two sets of people holding relatively opposing views are shown an ambiguous document, each of those two sets of people will interpret the document in a way that supports their particular viewpoint. Hardly a surprise you may think, but it has wide ranging implications for the decisions we take. For example, what looks like a well designed and clearly worded policy to the underwriter may be confusing and difficult to interpret for the policyholder.
What is happening here is a tendency to ‘see’ what is most supportive and advantageous to our own viewpoint, while playing down the importance of things that are in conflict with that viewpoint. We filter in what we think is significant and filter out what we think is not significant, with significance being of course in the eye of the beholder. This is the self-serving bias.
How Common is the Self-Serving Bias?
The self-serving bias is not something unique to insurance people. We all have a tendency to hold self-serving biases. How they form, and how we handle them, are part of our social development. On the one hand, they teach us how to present our case. On the other hand, that needs to be balanced with the ability to reflect upon the case being put forward by others. This is one reason why I suggest that listening could perhaps be the most ethical activity of all.
Two factors make self-serving biases a challenge that insurance people need to watch out for. Firstly, underwriting, claims and counter fraud involve a range of skilled and technical tasks. However, this in turn tends to build more than a little self-belief in the uniqueness of one’s knowledge and in one’s ability to ‘see things as they really are’.
And secondly, the product that the underwriter designs and helps deliver, the service that the claims person delivers, are both built around a promise, made tangible by the way in which its wording is framed and laid out. Both are fertile ground then for self-serving biases to take root.
One window into the impact of self-serving bias in insurance could be through the reports of the Financial Ombudsman Service. It deals with cases that have already had a complaint to the insurer reviewed and turned down. So when a line of business has an uphold rate of more than say one third, this could point to some level of self-serving bias not helping insurance people see the outcomes of their decisions as most others see them.
Tackling the Self Serving Bias
So what can insurance people do to reduce the influence of the self-serving bias? Three approaches come to mind:
- train your managers and supervisors in reflective thinking. This will help them to step back from the immediacy of a particular situation and weigh up a situation from the perspective of others;
- encourage a culture across your various functional teams that accepts questions being asked and even the occasional challenge being made. Such counter-weight voices help to build confidence in the soundness of decisions;
- teach your team to watch out for rationalisations. These are lines of thinking and phrases often used to justify a poor decision. One rationalisation to put high on that ‘watch list’ is ‘everyone else is doing it’. A famous insurance chief executive once described it as ‘the five most dangerous words in business’;
- take steps to address undue pressure through your performance and appraisal systems. It’s common to see the self-serving bias grow when people feel under pressure to reach a certain decision. After all, there’s little point in providing training in reflective thinking if your people feel under too much pressure to actually use it.
The self-serving bias is one of a number of ethical culture themes that fall under the heading of behavioural ethics. Look out for other toolkits that explore other aspects of ethical culture / behavioural ethics.