The big ethical challenge for insurers in 2021 will be to learn the lessons from events in 2020 and to apply them systematically across the firm. And meeting that challenge relies very much on how well an insurer has scoped its response to the main ethical event of 2020, which was of course the pricing review. So if an insurer is tempted to think along the lines of “we’ve sorted out pricing; let’s get back to doing business”, the danger is that they will miss all the implications that flow from the pricing review. Those implications exist not just for underwriting, but for claims, counter fraud and marketing too. If those implications are missed, then those firms, and the people who run them, will face a significant risk of reputational crisis, most likely in 2022. This means that 2021 offers a window of opportunity.
A Window of Opportunity
And that window of opportunity most definitely exists, for the pandemic has stirred up so much about how firms deliver products and services. It is acting as a huge accelerant for change. And in such times, the absolutely key question that insurance people, both executive and non-executive, need to know the answer to, is ‘are we heading in the right direction?’
Those insurers who do learn the wider implications of the pricing review, and apply them across the key functions of their business, will find themselves moving towards a super-highway, both digitally and reputationally. They will be asking questions and making decisions that signal to their owners, their customers, their public and the regulator, that they have grasped the wider picture and are steering an ‘informed and trustworthy course’ through a period of profound change.
Informed Navigation of an Ethical Landscape
I often talk in terms of landscapes, maps and navigation, and you can look to 2021 using those three things. So, in 2021 and into 2022, the ethical landscape is going to be shaped by the consequences of events external to the firm and decisions internal to the firm. That’s the nature of ethical risk, with its layers of market, firm and individual risk. Firms aiming for the digital super-highway have been mapping that landscape as it evolves, and identifying the opportunities and dangers it presents. And as this has been going on, their people have been preparing to navigate some of the ethical choices they will be facing. These firms know where they are, where they’re heading, and the decisions needed to get them there.
Some insurers may be tempted to navigate that landscape using a ‘legal and regulatory’ map. In other words, is what we are doing within the law, within regulations, or outside of them? And while there’s some mileage in this (after all, who wants to be outside the law), there’s also risk from it as well. The public don’t trust firms just because they’re compliant. They expect more, beginning with a recognition of ‘the spirit of the law’. In these times of digital change, the gap between the letter of the law and the spirit of the law is widening. Which does your firm want to be recognised for? How does it check this? How independent is that assessment?
Three Lessons to be Learnt
So what should a firm focus on, when asking itself ‘are we heading in the right direction?’ What signals should it be tuning into? What lessons should it be learning? I’m going to focus on three.
The events of the last few years have, in my opinion, made clear that data ethics is a continuing issue that insurers need to be very focussed on. And the pricing review, as the main ethical event of 2020, presents insurers with all sorts of lessons to be learnt around data and ethics. What the regulator had to say about the fairness of pricing is also very relevant to the fairness of decisions in functions like claims, counter fraud and marketing. During 2021, insurers should be moving beyond pricing and applying the ‘lessons to be learn’ to those other functions.
Insurers need also to think beyond fairness and address another fundamental issue for data ethics in insurance, which is discrimination. Several signals are pointing to this emerging as a key theme that the UK regulator will address in 2021. It will probably come through some form of output from the ‘discovery work’ they’ve been doing on data ethics. Yet oddly enough, it looks like that discovery work on data ethics has dropped off the sector’s radar. The pandemic may have delayed it, but it has not gone away.
I believe 2021 will see the FCA using output from their discovery work on data ethics to raise serious concerns about discrimination in pricing, claims and counter fraud. I’m reliably informed that such concerns are warranted. And just as the regulator used its own data and analytics to back up their final decision on pricing practices, they will do the same to back up their concerns about discrimination.
If you’re in any doubt about this, then read what the FCA’s then interim CEO told the Treasury Committee in 2019.
The Functions to Focus on
So on which functions should most attention be focussed? Without doubt, it should be on claims and counter fraud. I’m going to be rather pithy and simply say that if an insurer thought that the outcome of the final pricing review was daunting, then the outcome of a regulatory ‘lifting of the lid’ on certain claims and counter fraud practices will be much more so.
Remember that US regulators have been investigating data-driven practices in claims functions for a year or two. And remember that the UK and US regulators enjoy a close working relationship. These point to it being only a matter of time before UK insurers receive requests for data and procedures relating to claims and counter fraud, if they haven’t already.
The list of ethical risks arising from certain claims and counter fraud practices is worryingly long. If you’d like to know more, download a short paper using the button below. It's free, two pages long and no email is needed. I’d be happy to chat over any of the issues with you.
So, to sum up. The big ethical challenge for insurers in 2021 is to learn from 2020 and address ethical issues across data, claims and counter fraud. A good starting point would be to make sure that these three actions feature in your plans for 2021…
- have a clear policy and implementation plan for data ethics
- carry out an ethical risk assessment on fairness in claims, counter fraud and marketing
- implement a discrimination prevention strategy across all functions
And in scoping these actions, make sure that you avoid these mistakes…
- seeing data ethics as just a data protection issue – it’s much wider.
- relying solely on legal or supplier assurance – introduce some challenge.
We will all be glad to say goodbye to 2020, but in turning to 2021, insurers need to think very carefully about where they are heading.