Insurance reforms enable industry to reinforce its vital role

by Resolve Editor Kate Tilley

Get the culture right and the strategy will flow.

That was the message from former Insurance Council of Australia CEO Rob Whelan, now director of RWW Consulting, in an AILA presentation on ethics and integrity in insurance.

Mr Whelan updated a presentation he gave at a 2019 AILA luminaries dinner then answered webinar participants’ questions in a session moderated by AILA President Cameron Roberts.

During the Q&A, Mr Whelan said culture started at the top, including the board. Encouraging diversity in thinking, outlook and background made a big difference to opening people’s minds to the ways culture evolves. “It’s said that culture eats strategy for breakfast, and, in many ways, that’s true. Strategy will flow from a clear, articulated, well-understood and embraced culture.”

He said behaviours and reward mechanisms framed cultures. “If people see promotions occurring because of types of behaviour, that sends clear signals and people behave in ways that fit the pervading culture.”

When the signals were wrong or inappropriate, the culture was hard to change.

Mr Whelan said the legislative reforms flowing from the financial services royal commission would work long term, but be confusing at the start. “There are so many intersection points between the different pieces of legislation, the cumulative effect will be troublesome.

“People have good intentions, but won’t necessarily get it right all the time. In the short-term, people will struggle with compliance. But over time the industry will work through that. The new regime will be transformative, despite bumps on the way.”

Endless questions

Mr Whelan said insurance was simple in concept but complex in application.

“Application gets tied up in confusing detail and jargon. People haven’t got time to have things explained.” Over-regulation was a danger and “endless questions just to get a policy” would frustrate customers.

The industry was seen as “being tricky” and “relying on fine print”, which created a perception dilemma in the community.

“We have to be trusted [before we can] encourage people to buy adequate cover.”

Mr Whelan warned of the dangers of dehumanising the insurance interaction. “We have the tools to drill down to the nth degree of risk at an individual level, but we have to be careful about the application of those techniques. We can’t lose sight of the primary purpose of providing the cover people need against unforeseen circumstances.”

Peace of mind

Reflecting on his decade at ICA’s helm, Mr Whelan said the industry had matured, become more responsive, more connected to its customers and the community, and more willing to change and evolve.

Before joining ICA, he worked with AAMI, and said the insurer’s culture and operating style was relentless and its top-to-bottom focus on the consumer was impressive. The approach was simple: “We are here to relieve stress and provide peace of mind.”

“The culture inspired ideas, commitment and innovation. New techniques and operating methods were tested in different markets and, if successful, rolled out nationally. Staff were expected and encouraged to bring new ideas to the table which were often operationalised.”

AAMI introduced a customer charter which made 12 promises to customers and it promised to pay financial penalties to customers for breaches.

“My initial thoughts were: this must cost a fortune especially when the customer didn’t even notice the breach. Why do it? Cynical, I know. But on more thoughtful reflection I realised it was brilliant brand marketing.

“How do you think that customer [who received a payment for a breach] thought about the company they had chosen to insure with, and how many of their friends do you think they told? Sheer marketing genius.”

Loss of purpose

Mr Whelan said when the royal commission was first mooted he was reasonably confident  general insurance would be immune or, at worst, a sideshow.

“I was wrong. It is now a matter of record how the industry was portrayed in the commission hearings and, while one could argue that the picture painted was not entirely a fair or reasonable one, it did fit a pattern of a loss of purpose and focus on customer wellbeing. This is the most salient lesson to be gained from the experience, as excruciating as it was,” he said.

“Returning to the principles and values that drove so much success and customer satisfaction in AAMI is the approach that will redeem the industry in the eyes of its detractors and, most importantly, its customers.”

Mr Whelan said the industry had to reinvent itself through the auspices of its code of practice, rather than be a passive victim of the “veritable tsunami of legislation and regulation heading our way”.

He said the new code “reflects the challenges of a society and a market in a state of flux with many in our community suffering various forms of vulnerability ... It also looks to address some of the criticism of the royal commission – specifically the role and powers of the code governance committee.

“Justice will be done and be seen to be done with fairness at its core.”

Mr Whelan said the raft of additional legislation and regulation plus full implementation of the code of practice on 1July 2021 would “in aggregate add a considerable level of additional complexity to the industry and that will come with additional costs”.

The industry was already under cost and profitability pressures. “Inevitably there will be criticisms over affordability and the handling of claims during major disasters.”

But Mr Whelan said the reforms, both voluntary and imposed, were “an opportunity for the industry to reinforce its vital role in the community and, by maintaining high ethical standards and acting with integrity towards its customers, the industry will demonstrate its ongoing commitment to the well being of its customers”.