Vulnerability Starts with Scope

It’s not that measuring is not important. You need to measure in order to manage, goes the adage. Yet the risk is that a poor scope means your measures will be incomplete to the point of being misleading. This creates the age old problem of ‘managing to the measure’ rather than the problem. A poor scoping effective hides problems.

Back in the early 1980s, my post-graduate thesis was on the social and political aspects of how risk is understood and scoped. The focus was on Europe’s biggest petro-chemical complex and how an analysis of risk there was undermined by problems with scope.

Let’s look at how vulnerability should be scoped. I’m going to look at this at the ‘forest level’ and at three ways in which insurers need to think carefully.

Scoping Both Ways

For a long time, vulnerability was seen to be an issue for a discrete and generally small group of people. For example, those who are very old, with certain types of disability, on very low incomes, and so on. However, the more people like the regulator thought about vulnerability, the more they realised it was more complicated than this. Then the pandemic and cost of living crisis came along and the numbers of those considered vulnerable had to be revised.

At the same time, the corporate world has been engaged in a digital revolution, and this has itself influenced thinking what can be considered as vulnerable. Those who are unable to engage with digital things, be it for financial reasons (too expensive), system reasons (low connectivity), skills reasons (‘I just don’t get it’) or the like, experience a raft of problems and costs just in order to carry on with what is now seen as everyday life.

That is one side of the ‘now much wider’ coin. The other side was illustrated in some pretty plain speaking by a big political figure back in 2019. In a speech to the Social Markets Foundation, Andrew Tyrie, former chair of the Treasury Committee and then chair of the Competitions and Markets Authority, had these words to say on vulnerability…

“The rise of the digital economy has brought huge benefits to millions of people. But it has also rendered previously confident and capable consumers vulnerable to getting bad deals and poor service. This is not just people who are vulnerable on well-understood indicators: those who might be old, or on low incomes. It includes millions – perhaps even the majority – of the population, many of them ‘time poor’. They – us – are the “new vulnerable”. We are all vulnerable now.”

In other words, how firms organise themselves, and how they then put digital systems to use, can move people into this new form of being vulnerable. Now, I know some of you will be questioning this, on the basis that many things digital help move people out of being vulnerable, help firms provide better service and products to those who are vulnerable, and so on.

And I get this, but remember my core point here – how you scope vulnerability really does matter. So if you look very much at all the upside use cases and not at the downside outcome cases, then you’re seeing only part of the picture. It’s important to scope both ways.

Feeding Vulnerability

Let’s bring in insurance now. Andrew Tyrie’s basic point was that firms need to think outside of the ‘well understood indicators’ of vulnerability, and that when they do so, they will realise that how the firm organises and uses its products, services and systems can also influence vulnerability.

Claims is a good example of this. In big GI markets like house and motor, big and often complex supply chains have emerged to deliver a service to claimant customers. Yet the complexity of those supply chains is increasingly being seen as a problem for the sector (more here).

Indeed, the regulator has recently been making noises along just these lines. Is all that complexity getting in the way of service delivery and consumer value?  What’s emerging is the view that the claims experience itself can make one feel pretty vulnerable.

In my opinion, this is not a purely digital thing. After all, in pre-digital times, that power imbalance and inbuilt conflict of interest were always there. However, as often happens in most digital situations, that experience now feels more difficult and challenging.  

The key point here though is that vulnerability is not always something inherent in particular types of customer. It can come about just as much, and on a wider scale, by how the insurer organises itself and delivers its products and services. In short, how they set their ‘conditions for participation’ (more here).  

Exploiting Vulnerability

Let’s now move into a further exposure to insurers through another form of vulnerability. And I call it an exposure because it is entirely one of some insurers’ own making. I’ve written on several occasions in the past about claims walking and claims optimisation (more here and here).

The former is about testing a batch of consumers with claims of a similar nature on their ‘willingness to accept’ a progressively lowering settlement offer. When complaints go up, the settlement lowering stops, at least for a while.

The latter (claims optimisation) is about profiling a claimant and, depending on profile characteristics such as a poor credit score or biometric indicator, offering them an early cash settlement if accepted quickly. The issue here is that the cash settlement on offer is less than the value of the claim.

Both claims optimisation and claims walking exploit claimant vulnerabilities. Full stop. They are inherently unethical and should be the first things that insurers signing up to sector standards on AI Ethics close down.

The regulator has confirmed that many insurers have built systems to identify consumers who may be vulnerable. Great, but not if those systems are then used to exploit settlement opportunities like claims walking and claims optimisation.

Surely this is going a bit far, some of you may be thinking. Yet the regulator found such practices happening in pre-digital times as well, and in claims functions, and being used to lower claims settlements (more here). All I’ve done is see the connections, have some conversations and pull together some research.

To Sum Up

Let’s bring this together. Scoping vulnerability is extremely important. The starting point are the people who are vulnerable in terms of well understood indicators like age and disability. Then there are the people who the sector makes vulnerable by setting digital ‘conditions for participation’. And finally, there are those whose vulnerability is exploited through market ‘walking and optimisation’ practices.

At the moment, there’s a lot of work being done by insurers in the first of the above. There is some (but not enough) work being done on the second. And there is far from adequate attention being given to the third.

The obvious exposure here is that all that work on the first will count for little to nothing if the ‘feeding’ and ‘exploiting’ issues in the second and third are not properly addressed.

Digital conditions for participation are of course something inherent in other sector’s use of digital technologies, so insurers are not alone in needing to address them. Yet the exploiting vulnerability of the third is a particularly insurance one. It’s time to see the bigger picture and tackle it.