Is insurance missing the point with conflicts of interest?

  • 10 November 2016

Conflicts of interest are so common in insurance that they’ve given rise to a raft of rules, policies and procedures in how they should be dealt with. And in one sense, that’s pretty understandable, for insurance firms (along with their auditors and regulators) like to see procedural consistency over a key ethical exposure.

While I can see that such rules and procedures do add value, it can seem at times like a somewhat antiquated approach, akin to teaching by rote. Yes, they tell people what to do so they can get on and do it. And yes, they provide easily codified responses, for monitoring and reporting.  But at the same time, they can also lead to too great a focus on process, and then on compliance with that process. And some processes I’ve seen seem more guided by systems than by outcomes. There’s a danger that people become good at remembering the rules, but forgetting what they are there to achieve in the first place.

So, what else is needed? Something that brings forward what insurance people experience in the real world, with all of its complications, nuances and pressures. I label all those rules, policies and processes as the ‘hard skills’. And those hard skills, important though they are, will only really work if accompanied by the soft skills.

These soft skills guide insurance people not in what they have to do, not in why they have to do it, but in how they can make a better decision, in how they can face a choice and apply their own values and their firm’s value to a tricky business situation. They recognise that we don’t always make a good decision, but that, on the basis that we are good people, the commitment is there to learn the skills and build the confidence to make a better decision next time round.

There are two types of soft skills: those for use in immediate situations and those for use in hindsight situations. Some of them, like the Wall Street Journal test, are well known (although not always fully understood – more here), while others have been drawn from agencies whose people make high pressure decisions in relief scenarios, and from academic research into ethical decision making.

Perhaps the single, most powerful skill that joins all this together and that can transform our sector’s approach to conflicts of interest, is talking. It permeates those soft skills, yet does it permeate all those rules and processes that make up those hard skills? Do they mention, encourage, require, mandate that the conflict of interest is talked about? And by that, I don’t mean reported, but brought into the open and discussed. If not, then something vital has been missed. Try this simple exercise – how long can you talk about conflicts of interest with a colleague, without hesitation, repetition or deviation? If you can reach a minute, then that’s a good start. 

The insurance market still has some way to go in its handling of conflicts of interest – the UK regulator’s recent report on appointed representatives is evidence of this. To move forward, rather than just circle round, new skills have to be learnt.