'Get the culture right first'
Brokers play a role in keeping the commercial market honest and that's needed in the retail market, former AILA president Angus Kench told the AILA conference.
He said there was a significant difference between commercial and retail markets. "Brokers are a market regulator in the commercial space, keeping it efficient and responsive to customer needs. We need to get that across into the retail space."
Speaking in a panel session on emerging risks, Mr Kench, who is vice president claims - casualty, workers' compensation and crisis management, Asia Pacific, for Liberty Mutual, and AILA's immediate past president, said the issue was culture and that was a "fundamental thing to get right" in any business.
"If you get the culture right, everything flows from it. They say fish rot from the head, and that's true ... some places just do not get it right and it becomes how they do business."
Moderator Jenny Thornton, a barrister at Quayside Chambers, Perth, had asked whether technological change had sparked decision making without reference to right and wrong. She said the royal commission's interim report had suggested there needed to be a greater emphasis on moral and ethical standards. How were the two things to be balanced? "These are very challenging issues for us. Society demands a higher ethical response."
Susan Donaldson, head of claims at Berkshire Hathaway, said: "These are not new dilemmas, they've existed in society for a long time." Diversity was an issue in insurance. A diversity survey conducted as part of the Lloyd's Dive In Festival had 45% female respondents but only 2% of c-suite roles in insurance were held by women. "We have a long way to go."
Ms Donaldson said human elements needed to be considered in claims but was positive about the efficiencies technology offered.
Mr Kench said technology was "another tool in the kitbag". "Three keys are cost, complexity and communication, so angle your technology to those. We need to get costs out of the business but keep doing what clients require, and use technology to free time to better communicate with our clients. I'd like a robot to read 30 medical reports and distil the answer to me."
Ms Thornton said the financial services royal commission (FSRC) interim report had identified that simply ticking boxes was not acceptable. "How do we advise clients when no law says [something they propose] is wrong? A black letter technical lawyer might say there's no reason why you can't, but is it appropriate?" She said the client needed to make a corporate decision about their culture.
Clyde & Co partner John Moran said the argument of "can we versus should we" applied to everyone in the industry. "We must advise on risk holistically and how it affects the community more widely."
Ms Donaldson said she preferred lawyers who asked ‘what do you want to do, what's your company's view?'. "Our industry is constantly evolving and we will be held to higher standards of care. [I like to hear] this is the law and what's happened previously, but what do you want to do? How do we want to be perceived."
Mr Kench said the challenge for service providers was to get to know clients well and their culture and expectations, which needed both granular and helicopter views. "What are the dynamics behind decisions?"
Ms Thornton said the Cricket Australia report's findings had identified a culture of a desire to win without counting the cost. "There is a cost to winning sometimes. The will to win should be balanced with a commitment to moral courage and ethical constraint. We must pass that to our clients."
She moved the discussion from ethical standards back to technology. With Suncorp using the IBM-developed technology Watson to process motor claims, what risks did that pose? NSW Appeal Court president Justice Beazley had told the conference Suncorp had integrated Watson technology into its online claims process for motor claims, enabling customers to lodge claims online, receive an outcome, pay any excess and choose their repairer, all within five minutes.
Mr Kench said claims managers would need more technical knowledge, including an understanding of coding. "As we move into a new world it means a different knowledge base is needed, but without losing the human dynamic."
As a former loss adjuster, Mr Kench said training had changed because adjusters no longer learned on the job. Many small claims no longer required loss adjuster assessments, which meant more scenario training was needed to give new adjusters experience.
Mr Moran agreed the industry needed more mentoring and simulation training to "bring the younger generation to industry flashpoints". "There's no one solution; we need to get back to basics."
Ms Donaldson said it would have taken five years' experience to get a young claims person to analyse claims at the Watson level. It was important to understand what was going into a robot's programming and beware of unconscious bias. "If a bot is going to make very split-second decisions, without review, unless [a decision's] challenged, as the givers of knowledge to the bot, we need to know exactly what we are giving it."
Although FSRC had shown some in the industry haven't lived up to community standards, that was a call to reassess. She said the industry needed to "reboot and try again". "We need to get back to basics, and work on the culture of our organisations and our industry more broadly. We are there simply to help, to enable infrastructure projects and transfer risks. So much wouldn't happen without insurance. This is a positive call to the industry."
Mr Kench also extolled the industry's virtues. "The world stops without insurance. We beat ourselves up a bit too hard sometimes. We have amazing talent selection and a challenge to make it diverse, to represent our client base.
"We need to be bold and proud of what we do. It's an amazing industry and we get most of it right. But the appalling conduct that's come out of the royal commission needs to be called out for what it is."
In the Q&A session, insurance lawyer Michael Gill said there was an inherent conflict of interest between shareholders and policyholders. In a mutual, there was commonality of interest, although most financial services organisations had demutualised about 30 years ago.
Shareholders needed to understand claims were losses but the general insurance industry's business was to pay claims. "We need a better balance between the two competing interests. We need to consider whether the culture within companies is to find ways to pay claims, to maximise the return for the policyholder, not just the shareholder?"
Mr Kench said Liberty Mutual's culture was to find ways to pay claims. A declinature meant "the broker or the client doesn't understand the cover or we haven't designed the cover properly".
Ms Donaldson said Berkshire Hathaway was instructed from the top to "do what's right". CEO Warren Buffett's philosophy was: "Money we can lose; reputation we can't."
Former ANZ Bank risk manager and AILA Victoria treasurer David Abell said there was "no excuse for [the] bad behaviour" identified at FSRC but "the system has largely worked". "Yes, there's bad behaviour but, in reality, it's not systemic. Banks have mostly looked after customers well."
In the insurance industry, the principle of utmost good faith had ruled for more than 300 years, Mr Abell said.