It’s common for insurance firms to think in terms of conduct when it comes to managing ‘how things get done round here’. This is in large part down to the regulations they have to comply with, but also down to the corporate tendency to orientate their thinking around what their own people are doing, how their own organisation is performing. The result is compliance, which is great, but as I’ve argued before, it’s not enough.
The challenge for firms that focus on conduct and compliance is the customer. They’re difficult to manage and the outcomes they experience often seem small and, well, insignificant compared to all the effort the insurance firm puts in. And so few of them understand what they’re buying, and when they buy it, it’s with more than a little reluctance. The result of such thinking is a corporate mindset that usually equates compliance with ‘job done’ and that often struggles to understand customers.
Meanwhile, insurance is changing, becoming more data orientated. It’s using big data and clever algorithms to understand more about customers. And this causes insurance firms to think that they’re getting closer to the customer. This however confuses proximity with intimacy (as I explain here). Yet their mindset is still very much corporate centric, and that could become a significant mindset hurdle.
For not only is insurance changing, but the social environment around it is changing too. Indeed, the latter is the cause of the former. And here’s the crux – if the changes insurance is making are ultimately to be successful, then insurance needs to make sure that those changes are in line with changes to the wider social environment. If they’re not, then insurance will head off in a dangerous, potentially fatal direction - towards a cliff rather than along a superhighway (more on that here).
One change that is being picked up in this wider social environment is to do with ethics. As society becomes more digitalised, the locus around which the ethics of information (as it’s being referred to) is becoming more firmly fixed, is that of the consumer.
Think of it this way: the change is one of thinking less about ‘what I ought to do’ and more about ‘what ought to be respected’. This is not new or radical, at least within broader realms of professional ethics: medical ethics has always been more allocentric than say business ethics.
This means that for the transformation of insurance to succeed, it has to be more than just a transformation of the business. It has to be a transformation of the corporate mindset. That mindset has be in tune with that wider social environment, with the way in which data is bringing about a much firmer locus around the consumer.
Some commentators point to what is being called ‘insurtech’: the multitude of start-up ventures seeking to introduce new insurance products through the clever use of data and algorithms. Isn’t their new thinking on product design and distribution creating a new locus around the consumer? I’m not convinced: they often do think differently, but their approach seems to be a lot about data and convenience, and not a lot that is allocentric.
The gap that faces the overall insurance market is between the corporate centric thinking of insurance firms and the consumer centric thinking of the digitalised public. Into that gap, many reputations could slide and fall.
Left as it is, this gap will cause the market to send out conflicting messages on ethics. Earlier this week, one leading insurer was talking about how difficult it was to remove a data driven pricing practice that clearly upsets customers, while proudly displaying corporate values that talked about never compromising on integrity under any circumstances.
So how might those in oversight roles in insurance firms respond to this problem? One approach would be to understand where the strengths and weaknesses of their firm’s engagement with and understanding of consumers might lie. All too often, firms talk about knowing their customers, when in fact they’re just talking about the customers that fit their corporate requirements.
I had a revealing experience of this myself. I was brought in to manage an insurance programme priced at circa £250 million a year. The main performance metric was a common one, but when we listened to customers about what was important to them, that metric came in at number 22 in their list of priorities. That gap between corporate and customer mindsets had just not been understood before then. The insurer, to their credit, recognised the importance of bridging it and set out doing so with much energy.
I’ve said before that listening is the most important of ethical skills. Many of those aforementioned strengths and weaknesses will lie in how the firm listens to consumers. And one way to weigh this up is through the use of an engagement matrix. You can download a copy of such a matrix opposite.
The engagement matrix has in its columns five techniques for engaging with an audience. The rows have 10 attributes for weighing up each of those engagement techniques. It allows you to pinpoint the gap between how the firm thinks it has been engaging with an audience, and how it actually has been. The gap you find with it will be indicative of the gap between corporate and consumer mindsets.
Tools like that table will help those in oversight roles to ask questions like “what is the evidence for consumers telling you that?” It helps with a particular problem often encountered in transforming markets: an unconscious bias referred to as the self serving bias (more on that here).
Let’s return to the bigger picture we developed earlier. The digital transformation of the insurance market is an output of a wider transformation taking place across society. To be successful, insurers need to shape their transformation around a key characteristic of that wider transformation. That means moving their ethical locus from being centred on the corporate, to being centred on the consumer. Sounds a bit like putting the public interest first, doesn’t it. Time perhaps then for 'professionalism in insurance' mark 2.
Insurance firms may think they’re there already, or that insurtech is taking them there. Both I’m sceptical about. It takes more than data lakes and clever algorithms to move minds. It may not be quick and simple, but it is necessary.
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.