As someone who’s passionate about the insurance industry and business in general, I’ve been following current events related to ethics and morality in business as of late. From the financial crisis to several corporate scandals, including flat-out fraud, there seems to be a moral vacuum, or at least a lapse, which is continuing to grow at an alarming rate. The question I’d like to ask is: can systems help create a moral environment within the insurer?
Like any other problems where technology is leveraged to solve an issue, no system can address this in a vacuum without a strategy, senior management’s support, an understanding of what the problem is, and an understanding of what the end state needs to be.
What can insurers lean on to help define what a moral business environment looks like?
Well, there’s always regulation. One of the primary directives of regulators is to try and create a fair, equitable and balanced market. The industry is full of regulation that is meant to fix business practice ills, from laws against churning by producers to the Retail Distribution Review (RDR) in the UK, where life agents are no longer allowed to collect commissions from life insurers on most products. The goal of RDR is to create transparency for the insured and keep the agent from the temptation of placing the applicant based on commission size instead of appropriate product fit. Some of these regulations have had minor impacts on the industry; some, such as RDR, had dramatic impacts.
Regulatory reform often only happens after a major trend of abuse or possible abuse has been spotted, and in general is never the desired outcome. Like other industries, insurers prefer to self-regulate. That is, they want to create businesses with their own moral character that is self-policing and extolls its employees and partners to perform at an expected ethical level.
Where do insurers find help in setting their own ethical standards? There are resources, including the recent launch of the Cary M. Maguire Center for Ethics in Financial Services (Bests Review, March 2013 “Schools of Thought”). It’s interesting to see an organization designed specifically to help address ethics being launched at a time when business’ moral compass needs to be aligned. The article notes, “The Center will be America’s first think tank and research center dedicated to keeping ethical behavior front and center in the insurance industry.” (It will be interesting to see how successful the center is, and whether it will carry much influence within the industry.)
Additionally, there are other resources, such as blogs, that address this exact issue, by applying a classical discussion of morality and ethics to today’s business. My personal favorite is: “Ethical Enterprise”, subtitled “A Blog about the Ethics of Business, The Business of Ethics and the Relation of Morality to Morale in Human Productivity and Happiness”. This blog provides thought-provoking discussion on the juxtaposition of modern life, business, examination of moral principles and how they are applied to today’s environment. (It is a highly recommended read for any senior manager.)
These resources are great, but as an insurer, how do you create an enduring moral and upstanding environment? Like any large-scale change effort, which would include establishing a cultural personality, successfully creating an ethical business environment starts at the top. The insurer’s president, CEO and senior staff must lead by example. I had the privilege to attend the International Insurance Society 2010 Madrid Seminar, where Ikuo Uno, Chairman of Nippon Life, Japan, delivered his keynote presentation, “Living in a New Era with Transformation of Values”.
Mr. Uno discussed the causes and effects of the last financial crisis. While his analysis was very impressive and insightful, the true power of his speech was in the message he made to the insurance leaders in the room. Mr. Uno did not bemoan the effect that the financial crisis had on his company, or the industry. He did not claim that the insurance industry is a “victim” of the times and try to scapegoat another party; instead he eloquently stated that it was a time for the insurance industry to stand up and lead in the face of a challenging environment. He noted that senior managers must embrace the promise that insurance is to the insured, and manage their companies long-term, not quarter to quarter, with the health of the insurer, the insured and the industry at top of mind. He extolled the virtues of the Golden Mean, embraced by both western and eastern philosophies (Doctrine of the Mean) as a foundation for creating a healthy economic and social environment that will create prosperity and stability for all.
Mr. Uno’s closing remarks were a challenge to those leaders in attendance, and reflect the quality of the man, the speaker himself: “I hope all leaders gathered here today, will strive with lofty minds, with moral awareness, and with strong sense of the Golden Mean, to help us realize a brighter future and insure that our current Great Recession really is a once-in-a-century event.”
Once senior management has set a course, and is leading by example, insurers can start to design an environment that drives ethical behavior. Now, I know there are scores of HR professionals that have much more experience on this than I do, but from my experience there is one main thing that drives people – what they are measured by and how this ties to their incentives. While classic management theory states that money is a dis-satisfier, this does not keep people from acting in a way that maximizes their income. Managers who are heavily compensated on quarterly results will not care about long-term performance. Sales people that are only focused on the short-term commissioned sale will not invest in the long-term customer relationship. Insurers must balance compensation and other incentives with the objectives and measurements defined to create sustainable ethical behavior.
Once management, staff and partners are aligned and motivated to create the desired environment, systems can be deployed to help sustain the desired environment. How? With process management and reporting, in particular where the two are coordinated.
Reporting, analytics and the right metrics are critical to help monitor how the business is running and reinforce the desired behaviors. For example, an agent who is measured and compensated not just on sales but on customer satisfaction, retention/persistency, profitability and account penetration is going to act much differently than an agent compensated solely by commission. Tracking these analytics and making them available to the agent on a real-time basis, on their desktop, will help to reinforce the company’s values. Throughout the organization, each role would have its own set of metrics that would reflect the values of the company.
With predictive and adaptive analytics, insurers can review books of policies, claims, complaints, and non-premium transactions to drive out data that can help the company respond to client needs much more effectively and in balance with the core ideals of the organization.
Lastly, whether it’s new business processes, underwriting, billing, commissions, claims, etc., an insurer defines what the processes need to be. This is not only to ensure the efficient and timely execution of transactions, but also to make certain that standards are adhered to. If transactions seem iffy, or if analytics determine there is a developing trend that needs to be addressed, the core processing and workflow (underwriting procedures, billing processes, etc.) can be adjusted to meet new and updated standards.
The ethical policies and standards of an insurer are really no different than its underwriting and claims strategies, and can be incorporated into systems and operations in a very similar manner if articulated properly. I hope Mr. Uno would agree.