What insurance people must learn to make better decisions

Duncan Minty -

A lot of insurance firms have learning programmes full of ways in which people can make better decisions at work. And that’s great, but the impact they’ll have on actual performance will be limited, unless attention is also given to behavioural factors that influence the way we arrive at decisions. This is particularly true in relation to ethical culture.

The response has been the emergence of behavioural ethics and it’s something that should feature in every insurance firm’s learning programme.

What is Behavioural Ethics?

Behavioural ethics is the study of why people make the ethical and unethical decisions that they do. It draws on work in behavioural psychology, cognitive science and evolutionary biology. Instead of focussing on how people ought to behave, behavioural ethics looks at why people act as they do.

It finds that many of the decisions we make are far from fully rational ones. This means that the ethical side to many decisions will be approached with a greater reliance on intuition than on a careful weighing up of the situation.

Good People are not Enough

Now many insurance firms will feel that their employees are all good people and that this will be reflected in how they handle ethical choices. It’s not as simple as that though.

Research in behavioural ethics finds that people facing ethical choices are unconsciously influenced by several factors, such as internal biases (like the self-serving bias), outside pressures (like the pressure to conform), and situational factors that they do not even notice.

Behavioural ethics teaches people about these factors, so that their influence on both individual and group behaviours can be better understood and managed. I’ve written about several of these factors in the past, in relation to both underwriting and claims: here are some links:

The Connect with Regulatory Risk

What should now be obvious is the very clear line that connects behavioural ethics with a firm’s ethical culture. In other words, the myriad of factors that influence ‘how things get done round here’.

Any attempt to address a firm’s ethical culture without paying attention at the same time to behavioural ethics is bound to fail. The two are too woven together for one to be addressed without the other.

Ethical culture is a key issue for the UK’s Financial Conduct Authority and I’d imagine many other regulators as well. It is central to two of the FCA’s current initiatives:

  1. the Senior Managers and Certification Regime and the accountability it emphasises, both individually and corporately, for ensuring the right ethical culture at a firm.
  2. on whistleblowing and how a firm’s ethical culture can influence the way in which those reporting serious concerns are managed.

If your firm has identified ethical culture as a risk to its business strategy, then learning professionals need to lift the lid of that ethical culture and dig around to see which behavioural ethics cogs are turning with greatest influence. Showing people how to manage those influences in more productive ways would form a key control for managing that ethical culture risk.

Behavioural ethics can reveal some surprising, even uncomfortable, truths about ‘why we do what we do’, both as individuals and as organisations (I’ve discovered a few for myself). That however is not an excuse for not addressing them. Regulators such as the FCA will be looking for just such evidence, and learning professionals will be a key contributor.

I can recommend two resources for learning more about behavioural ethics. One is the book ‘Blind Spots’ by Max Bazerman and Ann Tenbrunsel. And an excellent online resource is the Ethics Unwrapped Project at the McCombs School of Business, University of Texas at Austin, in the U.S.