Companies with strong social practices outperform their peers by 20% and face 30% fewer regulatory fines, yet trust in the insurance industry remains low. Why?
In episode 3 of 4 in our special ESG podcast series, RiskSTOP’s Johnny Thomson is joined by Kerris Earle, Training and Development Manager at Zing365, to unpack the 'Social' aspect of ESG. Together, they explore trust issues in the insurance sector, the widening protection gap, and the industry's progress – and ongoing challenges – in diversity and inclusion.
Listen in to discover how the industry is maturing and what’s needed to build more inclusive, equitable, and trusted organisations.
The transcript for this podcast is available below.
If you missed our previous episode on the 'Environmental' aspect of ESG, catch up here.
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TRANSCRIPT
SPEAKERS
Johnny Thomson, Kerris Earle
Johnny Thomson 00:07
What impact is your organisation having on individuals, groups and society, and is it a positive one? Hello, everyone. I'm Johnny Thomson from RiskSTOP Group, and welcome to our regular RiskACUMEN podcast, which offers thoughtful insight around risk management. Now, companies with strong social practices not only outperform their peers by around 20% but also experience roughly 30% fewer regulatory fines and litigation. It's increasingly recognised that the 'S' in ESG can enhance reputation, employee satisfaction and customer loyalty, effectively mitigating both operational and reputational risks. Today, I'm joined once again, by Kerris Earle, Training and Development Manager at Zing365 for what is the third part of our discussion about environmental, social and governance risk factors. This time, we're looking more closely at social factors. Hi Kerris, thanks for coming on again.
Kerris Earle 01:16
Hi Johnny. Thank you for having me again.
Johnny Thomson 01:18
Our focus for this episode is going to be very much on the insurance industry. And where I'd like us to begin here is with reputational risk, and in particular the word 'trust'. Trust has been a bit of an issue for the industry, hasn't it?
Kerris Earle 01:34
It has. It is a particular area of challenge for the whole of the financial services, but yeah, very much for the insurance industry as well. We all know that it's quite low. It is actually considered to be at almost an all time low at the moment. In a recent consumer panel that was led by Which?, they actually found that trust in the insurance industry is now lower than almost all other sectors in the UK that they track, and has consistently fallen over the last two quarters that they've been doing this particular consumer panel. So 21% of those consumers actually said that they trusted that an insurance company worked in their best interest, but 44% said they didn't trust insurance companies at all. Yeah, particularly low.
Johnny Thomson 02:30
It's a strange one for me. I think it is probably for you as well, because when you understand a bit more about the industry and what it's there for and what it actually does, which is really to protect our fantastic infrastructure and everything that we depend on on a daily basis, it steps up when something really difficult happens for so many of us. So bearing in mind that with that principle in mind, it sounds like a really good thing. What reason is there for this, this lack of trust? What's the problem behind all of this?
Kerris Earle 03:05
So one of the biggest issues that gets pulled up when we're talking about lack of trust for insurance, in particular, is things around rising premium as well as negative claims experience. They're probably the two sort of key factors that shape those really low levels that we're seeing, those bad experiences that individuals have then get spread. A lot of the reputation of the insurance industry is word of mouth. It struggled very hard to get rid of that untrustworthy, dare I say, money grabbing image that it's had for a number of years. You add in the current cost of living crisis, ongoing issues around that, and the fact that premiums are rising, we're seeing in the news that insurance companies are saying that they're not making any profits. And then, obviously, we know that's not true. So then trust is lowering even more so, so it is very much around those factors, unfortunately, and then just a traditional image that it's struggled to shake.
Johnny Thomson 04:15
Yeah, and is there something in a lack of financial education as well? You know, going back to what I said earlier, in terms of just understanding, really, what the industry is there for and the service that it performs, is there something in that as well?
Kerris Earle 04:30
Yeah, 100%. So there's that lack of access, there's lack of financial education, so customers are now less likely to buy insurance. That's then leading us to those significant protection gaps, which is also then leading us to higher economic losses. So that's the help of the few, sorry, the help of the many to help those of the few to cover costs of a claim, which is, of course, the promise that insurance is built on. It's very much struggling at this moment in time.
Johnny Thomson 05:06
Yeah, which leads us nicely into this, this whole subject of the protection gap as well. Tell me a little bit more about that, Kerris.
Kerris Earle 05:14
Okay, so we currently have quite a large protection gap. It's actually estimated that by next year, it will reach 1.86 trillion US dollars, which actually has potential to be catastrophic. So that's developed out of knock on effects of the pandemic that we're still feeling now. We've got the current gig economy people living from paycheck to paycheck, that lack of access to affordable cover, and it is raising questions whether our products, our traditional products, are still fit for purpose, whether the nature of risk itself could be being misunderstood, and even if we're too reliant on outdated risk factors like things like credit ratings always being pulled into question about whether things like that are leading us to mispricing or even completely pricing out customers, which is just continuing to build that protection gap where people either can't afford the product, don't understand the product, or just don't want the product.
Johnny Thomson 06:17
So I mean, in essence, this is just a lack of cover. People are not covered by insurance for the time that they they might really need it. And you said this, this has a potential to be catastrophic. I guess what you mean, there is in some in the event of some major event, then insurance just won't be there to help society recover from that.
Kerris Earle 06:35
Yes, yeah, 100% which, again, is, of course, as we've touched on, the main purpose of insurance. It's not really being able to fulfill that with this gap that is continuing to grow.
Johnny Thomson 06:48
And under insurance, as well, is an element of that, it's not just people who just aren't insuring, there is a tendency, isn't there. I read the other day that small to medium sized businesses, in particular, were doing things like lowering sums insured just in order to afford insurance, which many of them are actually borrowing money in order to pay for the insurance. Which seems rather extreme to me.
Kerris Earle 07:12
Yeah, definitely. It all seems to be occurring, whether it's the consumer or, as you've said, even those commercial clients, those SMEs. It's a very strange time, I think, for the industry, particularly in that pricing out is a very sort of key point that we should all be looking at, particularly when we're talking about that social element.
Johnny Thomson 07:34
Yeah. So what sort of questions should the industry be asking itself?
Kerris Earle 07:38
So really, it should be thinking about, well, what seems to be the major problem there, we need to get the customers involved. We need to get their point of views, their perspectives and understanding of, why is it that maybe they're not purchasing products at all, or is it that they're paring down their cover to say, taking away their accidental damage just to be able to afford their property cover a little bit easier? Or could it be that we just don't have the right products in existence already for them? Do we need a different market and just getting that understanding? I think there's a real conversational, educational piece that we really need to be delving into, and some organisations are doing that. But I think it needs to be a whole industry wide taking a look at, are these products actually suitable, or the way that we're even looking at risk even suitable anymore?
Johnny Thomson 08:33
Yeah, that makes me think about risk management as well, you know, and the connection between risk management and insurance, one thing we're aware of here at RiskSTOP, I think, is only around about 2 to 3% of risks that are covered by insurance ever kind of gain the benefit of somebody going and carrying out an assessment and making requirements and recommendations for improvement on that. And I guess the industry needs to start looking at more things like like data, but also taking an augmented approach so that more speedy and rapid assessments of risk can be made, so that more people benefit from those interventions as well. Would you agree?
Kerris Earle 09:17
Yeah, definitely. It all needs just that, almost, a new lens, a new way of looking at what is fundamentally still risk. It's just looking at it differently.
Johnny Thomson 09:28
Yeah. Now another social factor that I'm already aware the industry appears to be, let's talk positively here, appears to be making some strong forward strides on is around diversity and inclusion.
Kerris Earle 09:46
Yeah. So there is some real difference being made in this space. If we think about the way we traditionally look at insurance, it usually is the old white man's business. That's sort of the traditional perspective.
Johnny Thomson 10:05
That's me, that's me, Kerris, yeah [laughs].
Kerris Earle 10:07
Yeah, [laughs]. It's just that traditional way of looking. But we know now, through a number of different studies, by a number of different research groups that around about 52 to 56% of new joiners of the insurance industry now are women. They are typically coming through for those sort of lower level jobs, but that's raised now to 52 to 56%. Even in those sort of executive senior management roles we've got an increase of around about 24% of women being represented in those positions. But then, if we actually look more towards those ethnic minority backgrounds, then the numbers do plummet. Got about 9% of the whole of the UK insurance industry is made up of ethnic minority groups or individuals from those groups. And if we're looking at again those executive positions, that number then goes down to 2% which is extremely lacking.
Johnny Thomson 11:10
So if it was a school report, it would read something like, made some progress, but could do better? Is that a fair summary?
Kerris Earle 11:17
Yeah, definitely. So it's making strides in the right way. But obviously there's a lot more work that needs to be done around that. And then if we pull in, going off on a little bit of a tangent there, but if we pull in things like the gender pay gaps, it's one of the industries, it's in the top three industries in the UK that has one of the biggest gender pay gaps at around about 26% for women in roles. And then if you're looking at the bonus pay gap, that then doubles and goes to 50%. So getting more women in more roles, but the pay still isn't reflecting much of a change. And then if we're again, ifwe're thinking about other groups, again, ethnic minority groups, or even looking at disabled individuals, there are some organisations now that, because of ESG, are reporting on those areas too. But unfortunately, we don't have enough figures at the moment to have a full picture on that. But it's just thinking, what would those figures actually look like as well, and what can we do to to actually mean that we're not only being inclusive and diverse, but we're also looking at that equity element as well, which is, again, needing a lot of work. So you know, aside from the kind of moral imperatives that surround D, E and I, what other benefits can organisations derive from addressing diversity, equity and inclusion? So for the insurance industry in particular, one of the biggest things, and actually is very much on the radar when it comes to the FCA around diversity and inclusion, is that diversity of thought, perspective and opinion. So when our teams actually have people that have got varied backgrounds, they've got different perspectives, they've had different experiences in life, they do tend to be more innovative and creative. Multiple studies are showing this. It's a fact. We can't get away from it. And it's especially true if we're talking about those individuals say, with neurodivergence, we often say, let's think outside of the box. For those of us that are neurotypical, we have to force ourselves to do that. For those that are already neurodivergent, they're able to do that automatically. So again, it brings you that natural thinking differently, that unique value to decision making. So it really helps with that diversity of thought, that innovation and then is also reflective of our actual customer base, which is, of course, incredibly diverse.
Johnny Thomson 13:56
Yeah. I mean, I would definitely second that we've actually adopted quite a strong, proactive approach around neurodiversity and employing people from a background, partly because there's some experience of that within the leadership here. But also, just because it feels like that it's the right thing to do. But the things that you've mentioned in terms of, you know that innovation, the real progressive nature of the team seems to emanate from that diversity. It's that old thing where, if you just have a strong mix of different ways of thinking and different talents and so on as well. What seems to happen here, and what you can see is it just becomes a highly effective team,
Kerris Earle 14:36
Yeah, 100%. And it's one of those things as well, that sometimes when you're talking about DNI, people think, 'Oh, you're putting all these efforts to these more diverse groups', when, in reality, no, this is actually for the benefit of everybody, and it's also actually for the benefit of the whole of the organisation. Because it does spark that, it increases morale, it increases your actual want to do the job because you're learning new things around it. We can actually be doing things differently. It brings a bit more interest to your roles as well, actually shaking things up a bit, moving away from the status quo. So it is an incredibly beneficial thing for all of us to be investing more of our time and resource into.
Johnny Thomson 15:20
Yes and I guess that creates a bit of a culture shift, doesn't it? And culture is always a difficult thing to move. And everyone always says, and quite rightly, that it takes time for that to happen. But describe, to me, Kerris, paint a picture of an unhealthy culture. What does it look like, and what are the negative aspects of that?
Kerris Earle 15:40
So if we're thinking of an unhealthy culture, that's one where we don't feel safe to speak up. It's one where we see behaviors, they could be discriminatory, they could be bullying, it could be harassment. We see those happening around us. We also see nobody challenging those, it's typically a tone set from the top as well. Of 'We will do what I'm saying we're going to do', not necessarily the right thing, putting in those sort of bad behaviors, not thinking about those sort of regulatory considerations, thinking more about how much profits we can make over the customer things of that nature. So all of those negatives, that i'm sure, unfortunately, we've all probably worked in a business where we've recognised that the culture isn't particularly healthy. It's typically ones where you wake up on a Monday morning and you dread that you're going into that particular office.
Johnny Thomson 16:40
Yeah, absolutely. And what's the opposite of that, paint a picture of a great place to work.
Kerris Earle 16:46
So it's one where we have got that inclusion. And again, this isn't just about those different groups of us. It's actually about for all of us that we all feel included. We all feel part of the team. We all feel like what we've got to say is actually listened to. We feel psychologically safe. So if we do think something's not quite right, we know that we can speak up without there being anything coming back against us, that it's not going to be used against us. Where that tone that's set at the very top of the business is also positive. It's not just do what I say, but it's also do what I do. And it's actually lived at the very top that we're going to have a good experience when we come to work, and we're going to be included. We're going to feel like we're part of something, part of a team. And again, just pulling that regulatory spin in it. It's one where compliance is lived and breathed within the organisation. And again, that's felt from the top to the very bottom.
Johnny Thomson 17:49
Absolutely and from my experience here working at RiskSTOP Group, I think one of the key elements of this is it has to be authentic. Has to be genuine. We talked about greenwashing, didn't we, when we spoke about the environmental side of things, and there's absolutely no way you can fail your culture. People can see through this, you know, it has to be real, as you say, it has to be from the top, but those behaviors have to exist every day for you to really accrue the benefits of having a healthy culture.
Kerris Earle 18:23
Yes, yeah, 100%. And it does, it impacts on everybody, whether it's positive or negative. And it's one of those things that you get a lot of businesses that are very successful, but they do have a poor culture, and you actually just think, well, actually, how successful? How much more successful would you be if your employees were actually motivated and wanted to be at your office? Chances are, a lot more successful. So it's very much, yeah, it should be that lived culture that's promoting that integrity, doing the right thing, and where our employees do feel safe and have that actual wellbeing isn't just lip service, like you said with greenwashing, but is actually something that's lived and can be felt and experienced.
Johnny Thomson 19:09
Yeah. So what element should employers look at to improve their culture over that period of time?
Kerris Earle 19:17
So it really is just assessing our behaviors within the organisation. Looking at our employee wellbeing, staff turnover, big indicator there. If we've got a lot of people leaving, that's usually a sign that something's not particularly going right. Particularly as well, if it's happening in certain teams, I know from my own experience within my career, there's been some places I've worked where there's been teams that have had multiple people leaving quite regularly, and nobody seemed to actually ask the question, well, what's the reason for that? It was more, oh, they can't hack it. And actually, I think if you sat back and had a look, you'd see that maybe it was one of the managers in that team that might have been causing that problem there. So it is actually taking an honest audit, an honest look at the business from that culture perspective. So are we promoting integrity? What are our business practices? How are our employees? Allowing them again to actually have the safety to give an honest answer, and one of the ways to do that is things like anonymous surveys, particularly if your business is big enough. I mean, if your business is quite small, it's very easy to pick out who those anonymous people may be. But that's just one way to go. But it's actually that honest look, being open to the fact that things might be going wrong. Nobody's perfect. No culture has absolutely nailed it, but just actually that honest look, what's going right, what's going wrong. How do we make this better?
Johnny Thomson 20:48
Yeah, and then investing in those employees and those employee relationships through through things like learning development and enhancing D and I and so on as well, yeah. Brilliant. And what about investing in other stakeholder relationships as well. I'm thinking more from an external point of view going back to where we began, if you like, how do organisations go around addressing social factors?
Kerris Earle 21:17
So again, focusing predominantly on that trust we've got to be building, or in some cases, actually rebuilding that trust, and that does require a lot of effort. It's going to require a lot of resource. So this is things like bridging the access and coverage gaps. So one of the ways that we can do that is actually engaging with those underserved populations. Getting an understanding of their needs, their requirements, again, that questioning of what are the reasons for not having the cover or what could be done differently, what new products could we be developing? Actually, just having that conversation with that underserved population, so getting an understanding of where things aren't quite going right, and how we can develop new ideas, new practices, even new products to support that.
Johnny Thomson 22:13
Yeah.
Kerris Earle 22:14
Another point is that education piece for our customers and clients, particularly around insurance. So trying to increase that financial literacy and the needs and levels of understanding of individuals, of course, pulls in things like the consumer duty, but I would argue it is part of the industry's role to actually be educating customers as well so that they understand the need for cover, and making sure that we are getting that across. Because another one of the reasons that we individuals don't really see value in insurance is because it is intangible. You don't know what it's worth until youneed to claim it, and you hope that you don't have to have a claim. So just having those discussions and getting that education piece involved is a real way that's going to help us. It's going to help the industry. It's also going to help those underserved customers.
Johnny Thomson 23:12
Yeah, I mean, you mentioned consumer duty. There are many aspects, aren't there, within consumer duty, around the whole social factors. You mentioned the customer education pieces, also those vulnerable customers as well, I guess a case of taking note of that regulation piece. And potentially there's more to come, isn't there?
Kerris Earle 23:31
Very much. It seems the FCA is having a bit of a big shake up, at the moment. We're seeing that move from what has been since they were formed, that principle based regulation. Of course, those principles are still the backbone of the whole of the FCA regulation, of course, the handbook. But what we're seeing is this more shift towards that outcome based focus, and I do believe it is only going to continue to go that way, with pushing even more for that quality care of customers, and really actually putting the customer at the center of the business. Which, of course, the regulator found wasn't the case with treating customers fairly is hoping consumer duty will be different here. And of course, soon, that would have been around for a year. So we'll see how that's going.
Johnny Thomson 24:24
Yeah. And, I think that there is a positive outlook here. I don't know how you feel Kerris, but you and I met at BIBA in 2023 and that started our whole conversation around ESG, and we met again recently, this year as well, and it's almost you get a sense from that event of a maturing industry. You know, these issues, like those that we're talking about now, seem to be getting higher and higher on the agenda within the industry, and I feel it's only a matter of time before that starts to, hopefully, transmit out to the world and to customers and so on as well, and this understanding of what I said originally about the real fantastic work that the industry can do for all of us in society, into in protecting those assets and that vital infrastructure and our health and all of these things as well. Are there for us.
Kerris Earle 25:26
Yeah, definitely. I think, as you've said, the industry is maturing. It is taking these strides. It's not necessarily been doing it very quickly, but I think we're living in the real big time of change for the industry, and I think that's reflective of society on the whole. A lot of change has happened, in what could be considered, in the grand scheme of things, quite a short time, I think, this decade, a lot of change has occurred very quickly. And yeah, it's just keeping our finger on the pulse and actually knowing we've got resource, we've got capability. It's actually just shaking up the status quo. And I think that's where businesses can struggle. They don't necessarily want to be the first one to do it. They want to see the strides that other businesses are making, and then they can see the mistakes that they've made, or see what they've got right, and then can sort of jump in themselves, but it's just who's going to be the first to come in and say, 'Do you know what we can see? Now, real issue with trust. One of the biggest reasons is cost. It is price. What do we do about this? What can we actually change? How do we get that fair value, that evergreen fair value that the FCA have constantly been reaching for, we don't seem to quite be landing on it, according to the general public and our customers'. So it is just who's going to take that leap, who's going to jump through and do that for us?
Johnny Thomson 27:04
Definitely. It's funny, you've said about change and then through times of change. We haven't even touched on AI and so on. And we don't really have time this episode. Maybe, on the next one, we can bring a bit of that into the conversation. But for now, Kerris, just many thanks. Once again, a lot covered, some really great stuff there. And next time we're moving on to the final part of our ESG series of podcasts focusing on the G of governance, looking forward to that one?
Kerris Earle 27:39
Yeah, I am, because, I think particularly for the industry, because so highly regulated. I think when we see the G, we think, 'Oh, we've got that covered. We've got the bribery and corruption', all of these elements, but it's actually, a lot of the focus for ESG is actually on those sort of uncomfortable topics that we don't necessarily want to dive into so much so, things like tax transparency, executive pay disparity. So I think there's definitely a lot for us to talk about on the next one.
Johnny Thomson 28:13
Yeah, yeah. So we've just been warming up to things, yeah, definitely, yeah, brilliant. Yeah, yeah. I'm really looking forward to that one too. So for now, thanks again, Kerris, and really looking forward to seeing you next time.
Kerris Earle 28:26
Yeah, no problem at all. Thank you for having me. And I'm sure there'll be a lot of questions generated from what we've spoken about today, which is one of the best things I think, to come out of this, actually start thinking, 'What can we start doing to bridge some of these gaps?'
Johnny Thomson 28:39
Yes, exactly. Totally agree. Yeah and if we can be even just a tiny vehicle for changing that then, then that would be, that would be wonderful too. Great. So that's all for this episode of RiskSTOP's RiskACUMEN podcast, everyone, if you have any questions or comments about the topic we've discussed today, or any of our other risk related content, please head to the RiskSTOP LinkedIn page. You can find a link at riskstop.co.uk. Thank you very much for listening in and until the next time. Goodbye for now you.
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