By James Norman, International business development director
As we navigate reoccurring global events and uncertain times, insurance continues to play a critical role in risk transfer — providing assurance and allowing organizations to continue business as usual.
Covers like business interruption (BI), cyber, trade credit and political risk may come to mind. With a greater focus on the protection insurance offers, the more important it is to maintain or enhance levels of corporate governance, risk management, and alignment of strategy, culture and operations.
Understanding conduct risk is fundamental to ensure the right actions take place and the essence of promises within an insurance contract are fulfilled. Paying a claim quickly, fairly and correctly could make or break a business or personal situation that is by definition caused by a negative scenario. Good conduct by insurers strengthens trust and confidence, reduces unsustainable business models and creates more of a level playing field. There are certainly local nuances to consider, including tradition, culture, legal regimes, maturity of the financial sector, product breadth and skill set. Ultimately, treating customers fairly will ensure good ethics across a market — reducing/eliminating potential abuse.
Application and influence
Insurance and wider banking/financial services (FS) is inherently complex. In an emerging market context, insurance is intangible until a claim is opened. There are high levels of financial exclusion/illiteracy, protection gaps and information asymmetry from point of sale through the claims journey. Governance also needs to be considered. For example, board appetite and approach, conflicts of interest, product design and customer experience. External factors related to the global risk landscape include geopolitics, contagion, socioeconomics, the level of technology and fintech capacity, the level of competition, disruption and innovation and market practices
Trust and confidence
To deliver good conduct, claims management must be considered. A claim is where the rubber meets the road and is the tangible part of insurance that defines the value and user experience, while simultaneously dictating future trust and confidence. When things don’t go according to plan, a trust deceit gap is introduced — keeping gross written premiums (GWP) and insurance penetration/density low. This is a result of the public belief that insurers behave poorly during the claims process, don’t pay out and/or don’t adhere to principles. In turn, risk transfer remains expensive and is seen as low priority.
However, it’s not just in emerging markets where trust falls in claims. In fact, BI claims related to COVID-19 required regulatory intervention and litigation in several areas of the world to apply coverage and consider the significant negative press and human impacts.
Misconceptions and considerations
Despite common frustration, not all claims should be paid; policies shouldn’t promise this. Investigations and any deviation from the routine customer journey must be justifiable, proportionate and expedient. Above all, the culture should be supported by a strong framework and strategy. To succeed, an insurer requires the appropriate mix of underwriting, risk management, technology and people.
When outsourcing, a claims partner should:
- Have the ability to integrate automation/digital labour and fast track validation and assessment/decisions.
- Invest in analytics to create insights about how you manage claims, your total cost of risk and leakages vs where you can become efficient.
- Use technology, including remote loss adjusting, drones and satellite data to drive better overall claim conduct, show innovation and follow a customer-first mindset.
- Adopt enterprise risk management (ERM) to drive better decisions with strong processes and challenge mechanisms.
- Train to ensure knowledge transfer and sustainability.
- Focus on talent and utilise the next generation as customer bases and interactions/channels change.
- Be agile. A customer with a micro-insurance policy experiences a different claims journey/need/engagement to that of a corporate customer with a multi-million dollar programme, so the appropriate claims response is required.
Understanding conduct risk and how to manage it is a prerequisite for good behaviour/ethics and claims maturity. International insurance principles continue to define best practices and standards that experts in Africa and around the world will adopt in local areas.