A conflict of interest is not a stand-alone ethical risk. To borrow a phrase, it has friends, and not very nice ones at that. And where such friends congregate, they send out signals about your firm that can trigger even worse associations. So while conflicts of interest may be a familiar, ever present risk for all types of firms in the insurance market, they must still be treated seriously.
A close friend of a conflict of interest is the risk of bribery and corruption. If you think about it, all corruption involves a conflict of interest. Someone is definitely failing to exercise judgement in relation to another when they accept an illegal payment for them to look after some other person’s interest. So if you’re getting one wrong, there’s a fair chance that the other is a problem too.
Now some may say that they are different risks, and firms may take one very seriously, while being less concerned about the other. The danger is that this represents taking a seed of truth (they are different) and selling it as a full grown plant. Both conflicts of interest and corruption are ethical risks that need attention, and both should be taken seriously. Think of the various mis-selling scandals that have blighted the reputation of insurance over the past thirty years. So in reply, I would tactfully hint to such people that perhaps they may want to revisit what they think is the lesser of those risks and look at it more carefully second time round.
Another friend of conflicts of interest is fraud. The Serious Fraud Office sums up fraud as ‘a deception intended for personal gain or to cause a loss to another party’. Remembering that a conflict involves having an interest that interferes with one’s ability to exercise judgement in a relationship with another, then clear failing to properly manage a conflict of interest could represent a stepping stone towards activities that are fraudulent.
Now some may say that this is a risk involving only a few exceptional, ‘bad apple’ individuals within a firm. It’s not that simple. A good employee who watches a colleague get away unchallenged with a blatant conflict of interest is left with the impression that ethical risks are not taken that seriously. And the next step on is for that impression to be taken as a tacit permission for that ‘good employee’ to ignore a conflict of interest next time round. It is this form of drift in ethical culture that can fatally undermine a firm’s reputation, with many ‘good colleagues’ being tempted into making bad choices.
And a blatant conflict of interest left unchallenged and unresolved also sends out a further signal. If an insurance firm’s control systems can’t spot and address everyday issues like conflicts of interest, then perhaps it also has weak systems for monitoring bribery and corruption. It’s the sort of signal that can expose a firm to all sorts of people with dubious intentions.
Conflicts of interest are ‘signal issues’: they communicate on more than their own level. It’s a double edged sword. Show that they’re addressing properly and ‘good people’ will, for example, take the hint and avoid making a bad choice. And ‘bad people’ may recognise that that firm is not for them. On the other hand, handle conflicts of interest badly and you start your firm down a dangerous slope.
Duncan is the founder of the Ethics and Insurance blog and the author of its many posts. He's a Chartered Insurance Practitioner, having worked 18 years in the UK market. As an adviser to many firms on ethics issues, as well as a regular conference speaker, he is one of the leading voices on ethics and insurance.