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Changing the culture of the UK insurance industry

20 June 2018
A widely held view within the senior leadership of the UK insurance market is that there are serious problems with the market's culture.

A recent survey by DWF LLP of 200 insurance market executives found that 34 percent of them believed the culture and mindset within their respective firms is the principal barrier to the achievement of those firms' strategic objectives.

The principal solution the executives identified to this problem was to increase diversity in their workforces. This begs various questions:

  • how should the culture of the insurance market be described;
  • what evidence is there for the market's lack of diversity and any effects of this on culture;
  • how might the market increase the diversity of its workforce and change its culture;
  • what risks and opportunities present themselves in the transition to more diversity and a different culture?

The culture of the insurance industry

The Financial Conduct Authority (FCA), in its March 2018 discussion paper, Transforming Culture in Financial Services, defines culture as: "the habitual behaviours and mindsets that characterise an organisation". Within the scope of this article, the authors suggest a working definition of: "action or inaction on the part of any workplace personnel in the expectation that this will be acceptable to some degree to peers or superiors".

While regulators have not described the culture of the insurance market in general, the culture of specific firms has been described. The FCA final notice from December 2017 in respect of Bluefin Insurance Services Ltd noted that senior management promoted a culture: "… that focused on compliance with … business strategies, rather than responding to customers' individual demands and needs and ensuring [customers] were in a position to make fully informed decisions"; and "… of favouring particular insurers … over others, which compromised [Bluefin's] independence ...".

In November 2014 the FCA issued some related final notices in respect of Swinton Group Ltd. Consistent findings as to culture were that: "Swinton's business strategy for 2011 carried an inherent risk of developing a ["sales focussed"] culture ["whereby profitability … was prioritised"] that acted to the detriment of Swinton's customers …"; and "Sales executives … felt pressurised to sell a product the customer did not want, [and felt] that sales targets were unrealistic, [and] that they were suffering overload … ".

Lack of diversity: evidence

The Chartered Insurance Institute (CII) recently published its analysis (PDF) of the gender pay gap results of almost 200 insurance firms. It revealed that the gap in the insurance industry was almost double that across all other sectors.

While a gender pay gap does not necessarily equate to an equal pay issue between men and women doing the same work, it does highlight that senior insurance management roles continue to be dominated by men. This in turn raises the issue of progression (or lack of progression) of women into such roles.

The lack of diversity in the industry extends beyond gender. An Insurance Census Report carried out by the Insurance Post and CII in 2017 demonstrated that the industry lagged behind the general working age population in its racial and ethnic diversity as well as its representation of those with disabilities.

Cultural change methodologies

It is arguable that the better way to make progress is to change the culture of a firm or industry to diversify the workforce, rather than vice versa. Where a firm succeeds in creating an inclusive environment in which every individual is empowered to make a valuable contribution, greater diversity in the workforce is then likely to follow. This in turn can enhance value-aligned behaviours and innovation, thus attracting and retaining talent, and ultimately improving the culture and outcomes of performance.

"Dive In", the global festival for diversity and inclusion in the insurance sector, described this phenomenon in 2017 as the "Diversity Dividend".

In 2016 the International Monetary Fund's report, "Unlocking Female Employment Potential in Europe", found that adding one woman in a senior leadership role led to a higher return on assets of 8-13 basis points.

Cultural diversity appears to have improved performance without resorting to the strategems pursued by Swinton in 2011. Setting aside moral arguments, a culture of inclusivity should be considered a critical requirement for firms to remain competitive.

Regardless of the process for change, an important factor in developing a firm's culture will be its own leadership group. The Senior Insurance Managers Regime (SIMR) already contains requirements as to prescribed responsibilities (PR) for senior insurance managers of: "(2) responsibility for leading the development of the firm's culture by the governing body as a whole; (3) responsibility for overseeing the adoption of the firm's culture in the day-to-day management of the firm …".

With regard to the relationship between diversity and culture, the Prudential Regulation Authority (PRA) has noted in its Policy Statement 1/18, "Strengthening individual accountability in insurance: optimisations to the SIMR", published in February this year: "Although … SIMR does not include an explicit PR for promoting diversity, [this] can be relevant to … PRs … pertaining to culture and
to the induction, learning and development of members of the firm's governing body."

Among the factors to be considered in diversity, the PRA specified "… gender, age, tenure and race … approach, skills and experience … [and] personality types", especially to ensure "effective challenge on a board [and "to combat groupthink"] …". The FCA has stated, in a speech by Jonathan Davidson in September 2017, that it looks to "assess" how culture is managed in relation
to four "levers":

  •  "… first … a clearly communicated sense of purpose and approach [especially] … the tacit understanding, shared by employees, of a company's true purpose [as set out in] strategic plans ...
  • second … 'tone from the top' – what staff hear and see from senior management …
  • third … the formal governance processes and structures, the policies and systems that specify expected behaviours and decisions … is there a clear exposition of conduct risks, the systems and controls for mitigating them and risk indicators for monitoring them?
  • [fourth] … people related practices … Remuneration, promotion and recognition criteria … Does a firm's pay structure reward misconduct? Is the pressure to turn a profit driving employees to act against consumers' interests?"

Risks and opportunities
Embarking on any transformational journey will inevitably bring with it some risk. Greater transparency and knowledge about gender pay might uncover some uncomfortable inconsistencies, potentially leading to legal challenges concerning equal pay. Firms should take a proactive approach to identifying whether any such risks exist and form a strategy to address the causes and consequences without delay.

Data showing gender splits in the top and lower quartiles of firms' structures might also encourage employees to challenge recruitment and promotion decisions on the grounds of discrimination. Work will need to be done to ensure that recruitment and promotion processes are fair, transparent and based on objective assessments of merit. While the financial risks of a discrimination claim are serious, it is the public – and potentially regulatory – relations damage that can be most devastating.

Where senior managers fail to embrace the values and behaviours associated with the cultural change and workforce diversification, firms will need strategic advice on how to overcome or remove the causes and agents of such failure.

This article was written for Thomson Reuters Accelus Regulatory Intelligence.

Further Reading