Ethical awareness for underwriters pt1: the tangible / abstract divide

  • 27 July 2016

Insurers are being urged to improve how they represent ‘the voice of the customer’ in the design and roll out of their products and services. One option is for underwriters to work with marketing people on generating this insight, drawing on the latter’s professional training about how customers think. Yet they face a very particular challenge that is not found in other business sectors.

What influences decisions

Research shows that the decisions we make are more influenced by recent and distinct factors, than by factors of uncertain scale that might happen in the future. One is pretty tangible, while the other is pretty abstract. This can give rise to some ethical challenges.

Think for example of the sale of payment protection insurance, which brought in lots of immediate profit, but then led to many disappointed claimants and huge sums paid out in compensation. That initial profit fed straight into bonuses, but, several years on, the compensation has mostly hurt the banks’ investors. It was easy to focus on something very tangible (the bonuses); less easy to focus on something more abstract (the possibility of compensation, paid for by someone else).

Insurance is built around the payment now of a known premium in return for the small possibility of some amount of claim being paid at some point in the future – a year or two for property, several years for liability, decades for life cover. This creates, probably more so than in any other business sector, the potential for an enormous gap to open up between what I described earlier as the tangible and the abstract. And in that gap, all sorts of decisions are taken, with all sorts of ethical implications. Two points are worth noting.

Is Professionalism Enough?

Firstly, I wonder if even the combined professional training of underwriters and marketers is enough to close down that gap at the outset. After all, they could well be facing a pretty sizable conflict of interest, one that most professionals would strive hard to truly mitigate.

Who might support them then? One problem is that many of the representative voices that insurers could listen to bring feedback from late on in the event cycle. Consumer panels, charities and ombudsmen can vocalise the impact of poorly designed or sold policies, but what would be of more value is for those experiences to be converted into things that insurers can factor in at the start of their products’ life cycle. Can this be done?

The second point relates to how insurers should approach decisions as to whether to close down a poor product or pull the plug on a product that is being misused. Doubts were raised about the sale of PPI long before the massive wave of compensation was ordered  – how can insurers pick out such voices with an ear independent and influential enough to influence decisions?

The tangible / abstract gap is influencing decisions in insurance firms. The voice of the customer is one way to bridge it, but to have legs, that voice needs to combine both the professionalism of those within and the authority and independence of those without.