Why risk and insurance demand professionalism

Risk analysis is a central part of any functioning insurance market.

Actuarial science, which sits at the heart of risk analysis, plays a huge role in insurers having the information they need to provide adequate cover for people and businesses, in even the most extreme situations.

Forecasting and developing in-depth accurate scenarios quickly allows the market and insurers to respond to changing risk profiles, and the UK is a world leader in this area with a rich history spanning hundreds of years.

Risk management is undertaken in response to this detailed statistical analysis.

The relevance of this is wide ranging from developing new products, to improving premium pricing and, in extreme cases, exiting a market that becomes too difficult to price effectively.

Why professionalism and ethics are vital

So, while from a business perspective these decisions can be seen as quite straightforward, it is when we approach this from a point of professionalism and ethics, taking the view of customer outcomes, that it becomes clear there are issues around how risk analysis is acted upon and communicated.

An example of this can be seen in professional indemnity insurance in response to unsafe cladding on buildings following the Grenfell Tower fire, where legislation continues to create unknown unknowns within building regulations and standards.

The Chartered Insurance Institute (CII) acts as the secretariat for the Insurance and Financial Services All-Party Parliamprentary Group, which is currently engaged in an inquiry into the issues resulting from unsafe cladding on buildings and how the market can collaborate with government to try to resolve these issues.

While we are at the very beginning of these proceedings, it is clear the key problem for all parties concerned is clarity.

It has been the lack of communication on what the underlying risk is, how high the risk is deemed to be and how the insurer can mitigate this risk fairly for all parties, whether it be increased premiums or rejecting cover entirely, that are at the heart of the issue.

Apart from the need to find another, wider short to medium-term solution, this serves as a helpful reminder of how as a profession we can build trust in the public. Put simply, this is through proper engagement.

Transparent communication is key

In terms of wider more available cover, there also seems to be a fundamental issue with how positive risk management decisions are conveyed.

For example, telematics has been proven to reduce the risk for younger drivers. This doesn’t just decrease the premium, but it improves road safety for everyone and thus saves their lives too.

The product was designed in response to the ever-increasing risks in road safety in relation to younger drivers, not only to themselves but also to others, and serves to highlight the value of risk analysis and innovative risk mitigating product development.

Yet take-up of telematics among young drivers is far less than expected and communication around why people should use this technology surely has a part to play.

The CII creates standards of professionalism, regardless of any specific discipline. It is about holding your work to a higher standard, delivering the best outcomes for customers and having pride in the work you do as your career, not just a job you do.

Insurance and the wider financial services sector has the ability to change lives and enhance our society for the better in many cases. But there is always room for improvement.

I think the current coronavirus pandemic will only serve to highlight how much more we must do to continue the incredible work we already undertake, reach out more effectively with new affordable and understandable products, and ensure we bring our customers with us on the evolving journey.

We might not always be able to keep all parties happy, but if we deliver our very best, while being open and honest, we build trust in our profession and collectively serve the public better.