Life insurance review shows all boards there’s no room for complacency

There are some real warning signs in the life insurance review for all boards, particularly around setting codes of conduct, tone and culture from the top, says Kirsten Patterson.

The findings of the Life Insurer Conduct and Culture Report, recently released by the Financial Markets Authority (FMA) and the Reserve Bank of New Zealand (RBNZ), is yet another reminder for all boards of the importance of governance of conduct risks. 

It is easy to say “I’m not in the life insurance industry, so this doesn’t apply to me”. But there are some real warning signs in the report for all boards, particularly around setting codes of conduct, tone and culture from the top. 

So while this report may not be for your industry, there are some important themes that all organisations can learn from in this review. 

After all, boards should be looking at what’s happening elsewhere to see what the trends are and how these could be applied to them. 

Organisations would do well to get ahead of these issues and don’t wait for an industry review to be conducted in their area.

While the report finds no widespread misconduct or poor culture in the life insurer sector, it says governance and management of conduct risks are weak across the sector. 

At the board level, few life insurers had thought seriously about culture and conduct which is quite disconcerting. In addition, boards and management are not setting the tone for managing conduct risks and prioritising good customer outcomes. 

These weaknesses need to be addressed immediately as stressed by the authors of the report. Otherwise, as Reserve Bank Governor Adrian Orr warned, “public trust in life insurers could be eroded unless boards and senior management transform their approach to conduct risk and achieve a customer-focused culture.”

The Institute of Directors’ 2018 Director Sentiment Survey found that in the last 12 months, just over half of New Zealand boards had assessed ethics risks – 55 percent, up from 44 percent the previous year. 

While this increase is a positive development, things can be better. 

Echoing the FMA-RBNZ report, our survey also found that less than half of boards (46 percent) receive comprehensive reporting from management about ethical and conduct matters.

All boards have a core role in overseeing corporate culture, conduct risk and setting high standards of ethical behaviour. Directors need to think beyond compliance, and instead take the lead and set the tone.

They need to ensure they are getting comprehensive and timely reporting from management so they have their finger on the pulse of the organisation.

This can help ensure conduct risks such as fraud, corruption, bribery and unethical behaviour, which have the potential to cause significant financial and reputational damage, are better managed. 

Indeed, there is much greater need for ethical conduct reporting and culture reporting.

 Boards should be getting much better line of sight to the complaints that are coming in from consumers and how those are being addressed. Boards should be looking for trends, for issues that are coming through, and seeking assurance that those sorts of issues are being addressed. 

By building good conduct into their governance models, boards can then focus on long-term sustainability, good customer and shareholder outcomes, and a healthy culture for staff.

We’re seeing greater awareness and greater understanding of the responsibilities directors have to ensure they are setting that tone appropriately on these issues. We’ve seen these issues play out in other organisations and other industries. 

A lesson for everyone is that we can expect an environment of greater transparency and greater expectations in terms of governance standards.

We need to be taking the learnings from these reviews, including the one on the banking sector released last year. Clearly, boards have no room for complacency.   

Kirsten Patterson is the chief executive of the Institute of Directors. 

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