How insurance history could have been different if ethics had been measured

  • 11 February 2013

Are you in two minds about introducing performance metrics on ethics into your firm? You needn’t be, for they’re invariably straightforward to frame and introduce, and they have the potential to make a huge difference. To get you thinking, here are a few examples of how insurance history might have been different, had relevant metrics on ethics been in place and actively scrutinised by senior executives.

The ethical issue: conflicts of interest

Typical ethics metric: a table showing revenue by income category for key clients, accompanied (depending on your firm) by a supporting table showing this by a fairly granular level of time.

Why it matters: about 10 years ago, the big insurance brokers were fined many hundreds of millions of dollars by US authorities for inadequate management of conflicts of interest, the offences having taken place across their global operations. The issue remains controversial and has become more complicated as the services provided by intermediaries have proliferated.

The ethical issue: fairness of underwriting.

Typical ethics metric: a scatter graph, with one axis showing business volume and the other axis showing levels of socio-economic development derived from geo-spatial data.

Why it matters: the practice of denying or charging more for financial services according to the socio-economic characteristics of where someone lives has a controversial history that still sends out ripples today. This seemingly innocuous practice became headline news when it was found that certain US neighbourhoods were being ‘red-lined’ on the basis of race. The interpretation of socio-economic data remains an ethical issue that all insurers (US or elsewhere) need to take great care with. An ethics metric of this kind should be used by insurers as part of their underwriting strategy reviews/audits.

The ethical issue: maintaining an ethical culture

Typical ethics metric: a dashboard of findings from a biennial ethics survey of staff, accompanied by a graph of ethics training by year and function.

Why it matters: a number of insurers have failed as a result of unethical and illegal practices, resulting in periods of market turmoil and compensation payments funded by other insurers . Several insurers might still be with us today if their board had been provided with an ethics metrics like this, alerting them to systemic issues around leadership and behaviours.

The ethical issue: honesty and integrity in dealings with customers

Typical ethics metric: a table showing referrals and findings across a number of regulatory bodies, coupled with customer complaint data (timing as well as resolution).

Why it matters: the public’s trust in insurance is vital for all sorts of social, economic and political reasons and while misunderstandings can arise, the underlying performance on how problems are listened to, handled, resolved and learnt from will, again, alert a board of directors to system issues around leadership and behaviours.

Hindsight is of course a wonderful thing, but then, so is being prepared and listening to the signals that your business is sending out. Ethics metrics like these are not particularly difficult to introduce and will help maintain the reputation and integrity of your business.

There are of course a good many other ethics metrics that a firm might adopt, but hopefully, the examples I’ve sketched out here will give you food for thought. In later posts, I’ll look at how to choose the ethics metrics that your firm should focus on, as well as some of the ethics metrics of importance to particular functions like claims and sales.