The Big Ethical Challenge for Insurers in 2023

Insurance executives are having to work out how to reconcile two things: the expectations that the debate about data ethics is placing upon their firm, with the demands that their digital strategy is placing upon the business.

Insurers will find themselves falling into three rough categories:

• those who feel stuck between a rock and a hard place, with those data ethics expectations looking pretty irreconcilable with the digital strategy the firm has adopted;
• those with options, in that their digital strategy is capable of adapting to those data ethics expectations, but not without some sacrifices being made;
• those feeling pretty relaxed, for they already have data ethics as one of the key themes of their digital strategy.

So the big ethical challenge for 2023 is around how the firm can deliver the leadership to bring those two things together – the data ethics and the digital strategy. In short, it’s about delivering leadership on data ethics.

What insurers will increasingly find over the next year or two are situations where people in leadership positions face really difficult choices. So for example, how do they satisfy:

• performance pressures with data ethics demands;
• decision compliance with outcomes monitoring;
• partner agreements with ethical commitments;
• portfolio targets with decision flexibility.

I’ve seen the tensions these difficult choices can create, when for example a settlement system outputs decisions that handlers think are unfair, but can’t change because decision compliance is audited and linked to executive performance. This stacks three systems (digital settlement, compliance and performance) against fairness. What emerges then are executive saying the right things about data ethics, but unable to overcome the embedded hurdles to actually deliver the outcomes.

Struggling with the Practical

My research into leadership on ethics identified five key skills: learning the language, having a vision, helping decisions, overcoming hurdles and setting a personal example (more here). Leaders in insurance are starting to tune into the language of data ethics, perhaps even shaping an ethical vision for what they want, but struggling to ensure that decisions across the business deliver on the practical side of that vision.

It is in helping people at all levels in their firm to deliver decisions in line with their data ethics commitments, and in helping them overcome the hurdles they then encounter, that I believe the big ethical challenge for 2023 lies. In other words, the practical side of leadership on data ethics.

Those who succeed in delivering those decisions and overcoming those hurdles will over the next few years progressively distance themselves from those who stand back from the hard decisions that data ethics will require of many firms. And by ‘many firms’, I mean those who fall into the ‘rock and a hard place’ and ‘those with options’ categories I outlined above.

How many do I think ‘many firms’ amounts to? Well, at a rough guess, three quarters or more. A lot of firms in the sector have a lot of work to do on data ethics.

Risk and Priorities

Let’s move on and look at that last sentence in two ways: priorities and resources.

Some in the sector will not see data ethics as a priority. Sure, they will recognise it as something circling round the sector, but also that it is not critical enough to require any significant redesign of strategy or systems. Comments such as ‘people just have to trust us on this’ and ‘this is just how things are going nowadays’ are examples of this view.

And sure, the sector has many things competing to be a priority. Luckily, the sector has a lot of experience of risk assessment and prioritisation, so the question then evolves more into one about how good the sector is at evaluating the significance and likelihood of data ethics risks. In my opinion, based upon what I’ve seen and heard over the last ten years or so, the sector is not as good at assessing ethical risk as they may think.

Examples of under-estimating ethical risk include a) the entrenched support for lifetime value modelling coming second to the ethical challenge of the pricing super complaint, and b) the attitude across the sector of ‘we would never do something like that’ looking weak when compared with the evidence of discriminatory pricing found in the ethnicity penalty report.

To these can be added issues around privacy and fairness that lurk like dangerous bubbles of reputational risk, fuelled by certain market practices and in danger of being popped by legal or media challenges. Developments in the US market (such as this) point to this growing in likelihood.

To sum up on priorities, the danger for insurers is that they do not have sole control over what their priorities should be. Others can force change, and have done so in the past.

Keeping Resources

Let’s look now at resources. As I’ve highlighted before, insurers are starting to build in-house resource on data ethics, which is great. If, as I think, expectations on insurers to deal with data ethics issues are growing, that resource will become increasingly valuable, for they help leaders understand the language, set the right vision, identify the hurdles and so on. The danger however is that, across the market, the extent of that resource does not match the likely demand for it.

That danger becomes tangible if the data ethics people at the heart of that resource question whether their firm is actually providing the right (or enough) leadership on data ethics. This happened a lot in ESG circles about 5 to 10 years ago. Expectations rose, leaders made commitments, delivery floundered and expertise left for firms that really were ‘walking the talk’.

My point here is that delivering the right leadership on data ethics is vital even for those insurers that fall in the ‘have options’ and ‘pretty relaxed’ categories I outlined above. Data ethics people want to work in environments that are about delivering solutions. Signs of ‘ethics washing’ turn feet towards exit doors. Sure, addressing these issues can often take time, but I’ve found that along the way, there are a number of clear signals of just how committed a firm is.

Moving Beyond the Usual

I’ll end with something that insurers need to watch out for. Over the last two years, talk in the sector about ESG has rocketed. Investors now expect insurers to have a vision, a plan, and some outcome results. The same will emerge around the 1 to 3 year mark for data ethics. In one or two areas, it already has emerged. Rating agencies working on data ethics is an obvious signal of these developments.

My point is that those expectations around data ethics will progressively broaden from the ‘usual suspects’ to new audiences like investors that executives will find difficult to ignore or downplay. Again, it will be their practical leadership on data ethics that will be under scrutiny.

Summing Up

Data ethics is not going to be an easy step for some insurers to take, especially if suddenly under pressure to do so. It can reveal tensions within a firm that lead to conflict around performance. Commitments start to unravel and people look to leadership to resolve this.

I’ve seen on several occasions how an insurance CEO will be saying all the right things about ethics and data, but then be unable to drive home the changes needed to alleviate the challenges their firm is being exposed to. Often the initiative is bogged down by middle management, struggling under performance measures and compliance controls to support a drive forward in digital. As a result, little happens. Business as usual becomes the easiest way

Delivering the right leadership on data ethics is the big ethical challenge for insurers because those tensions will become greater in 2023. Insurance executives need to think carefully about their own ethical capabilities and make sure that they are ready to tackle them.