Some thoughts on ethics, insurance and the pandemic

  • 19 March 2020

“Pay all of our policyholders in full, irrespective of the terms of their policies.” The famous words of Cuthbert Heath following the 1906 San Francisco earthquake and fire have become part of insurance folklore.  Heath still stands as the London market’s greatest innovator. The list of risks he invented policies for after pioneering and detailed research is a long one. Yet it was those famous words that cemented his reputation, at an equivalent cost today of 1 billion USD. It turned out to be a very good investment in trust for the UK insurance market.

In the midst of the current pandemic, I have my doubts that we will hear their equivalent forming part of any insurer’s strategic response. And to be honest, that doesn’t surprise me. There is, for example, no one with Heath’s stature to lead the market at this key moment.  And the two situations are not that comparable. Heath knew the San Francisco market for earthquake insurance better than anyone else. That meant that he knew what those famous words would cost him. Our knowledge of Covid-19 is far less clear at the moment. This means a ‘pay all claims’ statement now would resemble a piece of financial string. No private insurance market is that courageous.

Courage please

Yet is not now the time for some courage? Remember that insurers have a circular exposure. A tough approach on underwriting and claims could tip some businesses over the edge, which then impacts share values, which then undermines the investment strategies of most insurers. Avoiding such a spiral would be a wise move. It’s an even wiser move if you also factor in the social resilience that some of those businesses could have been providing.

I wonder if we will see more courageous decisions being made by the public insurance systems. Their solidarity approach to risk pooling gives them a robustness against pandemic knocks well beyond that of private insurance systems. The apparent sophistication of the latter may not measure up that well to the clear and distinctive purpose of the former.

What this tells us is not that one insurance system is good and the other bad, but that the strengths of each come to the fore at different times and in different circumstances. This however can become a problem when the differences between the two are large. And I believe those differences have widened in the last five to ten years, to the detriment of the private insurance system’s capacity to deal with significant events. There’s more than a little irony in this. The sophisticated layers of insurance, reinsurance and retrocession might not be as big and awesome as originally thought.   

Remember it's the public

Let’s turn now to the public in general and the consumer in the particular. The insurance profession is tasked with protecting the best interests of the public. And in a regulated insurance market, firms are expected to act in the best interests of each customer. To be honest, and in my own opinion of course, the market has not always risen to such commitments with the rigour and dedication that was expected. Every individual, every firm,  felt they were doing their bit, but overall, the conflicting interests that abound within the insurance delivery chain undermined a lot of best intentions.

Now is the time for this to be revisited. In testing times like the present, the public will expect those commitments to mean something. Is then the present pandemic the crucible in which the mettle of professionalism will be put to its defining test? Might trust in the sector soon surge in the same way that it did for the London market back in the time of Cuthbert Heath?

Leadership on Flexibility

That of course will be down to the leadership within our insurance sector. The well run firm, like a well run ship, has to understand how to weather the occasional storm. And by that, I don’t mean business continuity planning, but how a firm as a community adjusts and responds to particular and unusual situations.

How can they do this then? Insurers can do this in lots of little ways. Bringing some flexibility to the interpretation of terms is one. Another is loosening control mechanisms that force customer facing staff to go down the route of decision X, when a tweak would allow a much more beneficial decision Y. Giving firms a holiday on certain terms could be another, if those terms become difficult to implement when staff are self isolating. Giving automatic and free cover for work equipment brought home. Wordings used to be a forte of mine, but no longer, so I won’t go into any more detail here. You get the picture, I’m sure.

And of course there’s a lot of risk management advice that can help firms and individuals make the adjustments and carry on as best as possible. The sector has been talking about this for a while. Now is the time to show how it can deliver this.

Some people may question whether this could turn into a fraudster’s charter. And yes, there will be some people who will try to exploit this situation. Yet if insurers did less because of a fear of fraud, that would be a really big backwards step. These are times when positive, assertive engagement to help individuals and firms is what will matter. I’m sure Cuthbert Heath paid some questionable claims, but he reaped far greater rewards.

Digital and Innovation

Many insurers have been introducing analytics software into their underwriting and claims systems. And these analytics will have been trained and tested on data from normal times. 2020 will not be a normal year. This means there’s a danger the analytics will make decisions based on ‘normal time’ data, in situations that are now anything but normal. Your digital people need to be making adjustments for this, now. 

Insurers should also follow the lead of other sectors and turn their digital innovation resources to help fight the pandemic in some way. This is not the time to experiment with new products or services. This is the time to help deliver core services faster, better and more consistently.

Here’s an example to illustrate this. My wife is a front line doctor in central London who, despite being exhausted, whooped with joy when she found out that the communications firm her health practice uses had over the preceding week rapidly developed some great tweaks that really helped her engage with her patients remotely, while also ensuring outputs were integrated into the core patient system. How can InsurTech people do something similar?

Better Decisions

I’ve heard some big, authoritative pronouncements by leading insurers over the past week. And I’ve also heard some that were plainly unfair and very likely breaches of contract. So, of course make your external communications firm and decisive if you must, but be absolutely prepared to make exceptions when they are clearly due. People don’t all fit neatly into corporate boxes.

The challenge of course is to recognise them before they turn into a reputational nightmare. What often helps in such situations is diversity of thinking. People will see problems and they should be encouraged to voice them. Some of those problems will be operational, while others will be ethical – “that decision was not the right thing to do”. Be prepared, again, to recognise the exceptions and work to include them as much as possible. Singularity of purpose, diversity of thought.

Another decision approach is to pay attention to the bigger picture. It may well be that a particular claim was not covered, but if that then triggers problems for a firm working overtime to deliver vital services, then stand back from the policy wording and be prepared to be flexible. What helps here is the way in which senior people give visible and direct support to front line staff facing such dilemmas. This means more decisions being made by people than by systems. 

Finally, some firms will be approaching the insurance market offering all sorts of weird and wonderful technology solutions. Think carefully about adopting them. One example might be a life or health underwriter tempted to use tracking software to identity how consistently someone had been self isolating. Some decisions can be tempting in the short term, but look terrible in hindsight.

Summing Up

It is in times like these that sectors are defined; …when values and purpose guide leaders through challenging circumstances; …when decisions are made for the long term, not the short term. Cuthbert Heath knew this, and acted upon it. Let’s follow his example.

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