I’ve covered some of these challenges in previous articles (more here, here and here), but overall, they relate in some way to discrimination in the decision systems being used by insurers. The range of such decisions is wide, covering underwriting, claims and counter fraud, as well as both product and service.
As these decisions are invariably being delivered by digital systems, the impact arising from these challenges will ripple across an insurance business, touching on governance, compliance, culture, performance and leadership. This will shake up a lot of the ways in which insurers are now working in this digital age.
That impact will be generated by forced transparency. This happens when data and working practices are forced out into the open for public scrutiny, in circumstances that the organisation would rather not happen. This can happen in two ways. One is through hacking, but that is not what I’m focussing on here. The other is through legal and statutory means, and that is what I will be looking at here.
Legal and Statutory Levers
We can expect to see the inner workings of claims and counter fraud operations brought out into the open through court documents associated with legal actions happening in the US (more here) This is relevant to non-US insurers, for the systems and the thinking behind them are prevalent across many markets.
We will see movement on the ethnicity penalty campaign here in the UK (more here). This will hinge around the extent to which Citizens Advice feel that a) the market has been open with them, and b) the outcomes have been improving. It’s my understanding that both are not looking good. Quarter two will be the period in which we will find out what steps Citizens Advice will then take.
So what steps might those be? Waiting for a third year to receive the right data from the sector, or to see outcomes improved through the impact of the Consumer Duty, are both steps that we are extremely unlikely to see. What is more likely is the start of a move by the consumer group to acquire statutory consumer advocacy status in relation to personal insurance.
Statutory consumer advocates are given special powers to gather data from the sector to which they are appointed. Disclosures are by right, not by negotiation. Bear in mind that Citizens Advice already hold that position for two other sectors, and have the data science resource to handle the work involved.
Dated Narratives
Insurers have traditionally resisted openness about data and practices in two ways:
- by adopting a narrative centred around ‘we wouldn’t do something like that’;
- by positioning themselves as a heavily regulated sector that requires a lot of technical knowledge to understand how it works. This is the ‘you wouldn’t understand so just trust us’ narrative.
Those two narratives have a very dated feel to them now. Evidence that the sector could in fact be ‘...doing something like that’ has risen in both depth and quality (more here). And that technical knowledge is no longer the preserve of people working in insurers. It’s time for insurers to adopt new narratives.
New Narratives Needed
New narratives are needed, for forced transparency will effectively nullify both of those already in use. So how does an insurer go about this? Two things need to be done in parallel. The insurer needs to become better at listening to and understanding what is behind those challenges. And the insurer needs to become better at challenging itself.
Neither of these are easy to bring off. Corporate cultures have a strong tendency to self preservation. Yet that tendency is both a weakness and a strength. They resist change, yet when faced with a strong and unavoidable threat, that self preservation can trigger the change needed. And I believe forced transparency is capable of triggering that change.
The problem with forced transparency is that it can happen very quickly, and outwith of the organisation’s control. Yet while the timing of this forced transparency is not clear, the shape and depth of it is fairly clear. This makes it a relatively straightforward task for insurers to become much more familiar with the thinking behind these challenges. And familiar to the extent that reduces some of the impact when those challenges happen.
To Sum Up
The world is more transparent than insurers think. And it will become more transparent than they would prefer. This digital era is empowering all sorts of organisations interested in insurance, not just insurers. Align this empowerment with legal and statutory levers and one by-product is forced transparency. We will see more of it in 2024.
Insurers need to challenge themselves now, in preparation for these events. They need to learn to listen more carefully and build what they hear into their thinking about risk and strategy. Out of this will come a market that is more fair, and more trustworthy. Who wouldn’t have that for a New Year’s resolution.
