Insurance Company Transparency

Business Transparency - An Impending Insurance Company Culture Challenge

By Werner E. Kruck CPCU, ASLI

April 5, 2002 - The age of instant Internet communication was supposed to "change everything", but since the "dot.com" bust, many insurance companies are taking solace in a pace of change they find significant, but not overwhelming. Well look out, because it may turn out that the Internet will change everything after all, just not right away. Insurance organizations that fail to anticipate the coming world of open communication and adapt, may find themselves "busted", just like the "dot.coms".

Ever notice who is quoted in newspaper articles any time there is a major insurance related issue? Naturally, politicians and consumer advocates fall all over themselves to demonize the insurance companies and establish their relevance as protectors of the average person being "victimized". The "average" citizen views are normally well represented, as well as insurance agents and naturally, the poor unfortunate themselves, whether they be flooded out of their homes, devastated by hurricane, or unable to obtain auto insurance.

What do we normally hear from the insurance companies? Aside from the events surrounding the WTC attack where the severity of the potential crisis brought the actual CEO's out of their Home Offices to make dire warnings regarding insurance availability without Federal assistance, we normally hear very little helpful information. Typical are statements issued by a publicity person thousands of miles away from the issue at headquarters, stating the company position in vague, legally "safe" terms. If things get really out of hand, tough statements will be made by insurance organizations like the Alliance of American Insurors (AAI), or National Association of Independent Insurors (NAII). Giving the impression that they are speaking for an entire industry with a single voice, they actually allow the insurance companies to voice their opinions without individual accountability for their statements.

Where Is the "Voice of Insurance?"

With several million people employed by insurance companies, how is it that reporters can only come up with these "canned" and "official" responses? The answer, quite simply, is that virtually all insurance employees are specifically instructed not to talk with the press, but to let information requests be handled by the company's professionals, who will make sure that nothing bad is said that could reflect negatively upon the company, either from a public relations or legal perspective.

Does that mean that insurance companies do not trust their people to accurately explain the issues? Consider the following two instances where non-official communication was uncomfortable, to say the least, for an insurance company. The National Fair Housing Alliance says that "A Prudential representative specifically stated that if you have a home where the replacement cost is $150,000 and the market value is $74,000 ... (then) people could be buying and torching homes all day long and make money on it. Dr. Holiday-Goodman asked Prudential to mail her a quote for the $74,000 market value policy; however, she received nothing. "

In 1992, an internal memo written by Jeff Greenberg, President of National Union Fire Insurance Company and eldest son of AIG Chairman Hank Greenberg, directed company employees to take advantage of the situation following Hurricane Andrew to agressively increase insurance rates. Naturally, this generated an exceptional amount of negative publicity.

To be fair, neither of these statements is entirely incorrect. If you could buy homes, insure them for twice their value, burn them, and collect double, it would be very profitable, and it is occasionally attempted. The time to increase rates, especially in commercial lines, where availability, not loss costs, is the ultimate determinate of price, is during a "hard" market which usually occurs after companies have just lost a lot of money. Press treatment and public reaction, however, has not been so even-handed, which perhaps justifies insurance companies' approach to control over information released.

These two specific examples cited above are unusual in that they were "documented", by a recording in the first instance, and a memo in the second. The overwhelming majority of statements that would cause an insurance company to panic are verbal, and not only vanish into thin air, but are probably spoken to someone who does not realize the significance of the statement. This works to the insurance company's favor as long as the customer phones into the company for information or to make a policy change.

Email - A New Ballgame!

What if a significant percentage of the millions of policyholder inquiries come to the company via email rather than phone? Will the company respond with an email, and if so, who will write it? All of a sudden, millions of conversations will be "documented" and the insurance company now will have almost everyone in the company as a "spokesperson"! How about emails responded to by an agent? It could be an attorney's dream!

There are two issues that insurance companies will have to address as a result of the impending switch to email communication by customers. First, there is the death of "command and control" and the resultant "transparency" of the company's entire operation. Second, and the topic of a separate article, is the difficulty of monitoring and maintaining customer service levels without a totally new approach to handling email. Some email management solutions do serve to control errant communication exposure significantly, but ultimately not anywhere near the level of control that companies have enjoyed up to now.

Corporate Transparency

What is "transparency?" Simply stated, it means that the public has the ability, with the additional information, to penetrate the "secrecy" of processes and practices of the company and expose them for public evaluation. As companies recognize their exposure, many will initially try to increase controls to manage the situation, but that will not only be ineffective, it will actually compound the problem.

Why would the public care about how insurance companies do business? Because insurance companies have intentionally kept people in the dark about many of their practices, fearing that the public might misunderstand. Unfortunately, the more people percieve that someone is hiding something, the more they are motivated to find out what it is!

What to do about this? First, if you are a policyholder, you should consider transacting as much as you can by email rather than phone, so that you have documentation to support what you requested and what you have been told. For insurance companies, a number of things will change, one away or another.

A New Approach To Management

The best approach a company can take to prepare for transparency is to decide that it will judge every business practice and process as if it were to be published in its entirety on their Web site. If the question is asked "Would we be comfortable telling everyone we are doing this on our Web site," and if the answer is not a firm "yes," the decision should be revised until it is.

The second thing companies must do is to continually educate all of their employees on their entire business. Not just how to do their own part, but how the company does business, what the issues are, and why the company takes the position it does. If the company will do this in an open manner that allows honest examination by the employees, it will receive additional dividends through a stonger open culture and better decision making.

One initial step that insurance companies can take to get a start on the process is to broaden the role of Chief Privacy Officer to Business Practice Officer. Rather than an objective of simply making sure that the company meets the "letter of the law" the BPO would be charged with making sure that every company practice addresses the "spirit" of open and honest relationships with policyholders.

A final caveat on the process of moving towards transparency. Transparency requires building credibility that supports a trust relationship with customers, but it cannot be a process that is just limited to them. It has been shown time and again, that a company will ineveitably treat its employees, customers, vendors, and business partners the same manner, so if the transformation is not complete throughout the company culture, it will not be successful. There is still time, but not much, for insurance companies that intend to survive and prosper in the transparent future, to tear down the comfortable "command & control" cultures and open their organizations to collaboration.