Nov 4, 2021 3 min read

Why insurers need three lines of ethical expertise

We know that insurers are exposed to a variety of ethical risks. They are often big enough and dynamic enough to warrant ongoing attention. But by whom? I'm proposing the three lines of ethical expertise.

three lines
Photo by Tony Hand / Unsplash

We know that insurers are exposed to a variety of ethical risks. Some come from how the market is structured, while others emerge through changes in market practices. In both cases, they are often big enough and dynamic enough to warrant ongoing attention. But by whom? In today’s post, I’m going to propose the three lines of ethical expertise.

The three lines concept is of course familiar to many insurance people through their firm’s three lines of defence approach to compliance. And it’s a nice idea, when it works (more here), but the language feels wrong. Defence? It may work when it comes to complying with regulations, but not with ethics. The culture should be about engaging with ethics, not fearing it.

Line One

The three lines of ethical expertise starts with the need for those big and dynamic ethical issues to be understand and engaged with on an ongoing basis. This points to the need for subject matter experts working at the front line of underwriting, claims and counter fraud. It would not be their only role, but it would be significant enough a responsibility to be referenced in their job description and tracked through performance management.

Such subject matter expertise would track developments within the firm and the wider market, check that local risk assessments are still of the right scope and depth, and give advice to colleagues. Nothing rocket science about this, apart from having to know their ethical issue in some depth.

Examples of the ethical issues around which such expertise could be provided are conflicts of interest, fairness, data ethics and consent. A maturity matrix would help to position where such experts could have most impact.

Line Two

The second line of ethical expertise would be found in the firm’s risk function. This person would have a significant role to play in drawing the inputs and outputs together in relation to the various subject matter experts. In this way, they would then be able to draw out patterns and trends that could be of significance to the firm.

Such a role would represent say a third of someone’s time. They needn’t be experts in their own right, but should be good at seeing how issues and developments interact and combine, to then inform the firm’s decision making.

Line Three

The third line of ethical expertise would be a senior executive or board member whose role is to take a helicopter view of developments in the firm, in the market or coming over the horizon. They would seek external perspectives on such developments and translate their significance into the firm’s strategy and plans. They are likely to be a member of the board’s risk committee.

Note that I’m not suggesting any embedding of this three lines of ethical expertise within compliance or legal. Each of those two functions have their own platforms and plans, and while there would of course be coordination, they wouldn’t own the ethical side. It’s a different beast.

What impact might this three lines of ethical expertise have? Well, they should have been able to spot the issues around the fairness of pricing practices for one. And they should be active now in relation to two ethical issues that are very definitely coming over the horizon.

Now, some of you may be questioning the need for these three lines of ethical expertise. Agendas are busy enough, and isn’t it just duplicating the three lines of defence, goes the narrative. Well, one reason why agendas can be busy is due to having to deal with unaddressed ethical issues. And one reason why the three lines of defence are not as effective as people often think, is because they lack ethical expertise.

Easing Busy Agendas

Let’s run an example through all this. Pricing is the most obvious example at the moment. The subject matter experts would have picked up on changes in pricing practices and recognised that they had ethical implications. The risk line of expertise would have tracked those concerns, done some research and assessed the reputational and financial exposures to the firm, influenced by how those practices were handled. The board level of expertise could have brought an element of challenge to the senior leadership’s plans, drawing on input from independent expertise that has been tracking wider market trends and civil society sentiments.

And by doing all this, the firm’s agenda would have been lightened by not ending up having to fundamentally change the firm’s pricing strategy and systems. Not a bad return for a fairly modest investment in resource.

If you’d like further advice on making the most of the three lines of ethical expertise, get in touch.

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.
Great! You’ve successfully signed up.
Welcome back! You've successfully signed in.
You've successfully subscribed to Ethics and Insurance.
Your link has expired.
Success! Check your email for magic link to sign-in.
Success! Your billing info has been updated.
Your billing was not updated.