Financial Services Ireland


Conduct & culture – trust challenges in the Irish general insurance sector

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Government and the Central Bank have been seeking substantive change in how the general insurance sector is operating, added to by increased consumer advocacy, such as by the Alliance for Insurance Reform. Writing for Finance Dublin, EY’s John Clinton says there is still some distance to go before there is a clear demonstration from the sector that an embedded consumer focus has been achieved, of the standard expected by the regulator. There is hope however. He also says ‘there is evidence that attitudes are changing’.

The Irish General Insurance sector is facing a multiplicity of challenges. Against the backdrop of market uncertainty and operational challenges precipitated by the Covid-19 pandemic, the Government and Central Bank of Ireland (CBI) are seeking substantive change in how the sector operates. Customer advocacy groups are also expressing concerns on matters such as price, competitiveness and insurance availability. Despite progress in this area in recent years, a continuing concern – particularly on the part of the regulator – is the apparent lack of customer-centric culture demonstrated by Boards and Senior Management as evidenced by both perceived and actual customer outcomes.

Building this trust is an important and common goal for the sector and its stakeholders, without which it will be different to meet broader challenges such as the un-insurability of certain events, the growing insurance gap and the sectors’ role with respect to climate change. Addressing this deficiency, and internalising the CBI’s expectations with regard to culture, are a key first step for firms as the industry seeks to restore trust in the sector.

The regulator is not the only stakeholder that is challenging the industry’s behaviours and its willingness and/or capability to fulfil the role expected of it in a fair and transparent manner.

Culture and Trust

Since publishing its report on Behaviour and Culture of the Irish Retail Banks in July 2018, the CBI has continued to challenge financial service firms in all sectors on what it perceives as outmoded behaviours and culture. In the report, the regulator noted the following important prerequisites for successful cultural transformation:

  • A collective understanding of what consumer focus means and what behaviour it requires; and,
  • An embedded consumer focus in structures, processes and systems.

As is evident from its recent challenges to the insurance sector (examples of which are explored further in this article), the Central Bank does not believe that the sector is yet demonstrating these prerequisites. However, the regulator is not the only stakeholder that is challenging the industry’s behaviours and its willingness and/or capability to fulfil the role expected of it in a fair and transparent manner.

Customer Challenge

Customer advocacy for change has evolved in recent years from a simple focus on the cost of insurance (particularly motor insurance) to a broader set of challenges involving a combination of cost, insurance availability and transparency. The ‘Alliance for Insurance Reform’, a broad coalition of consumer, business and non-governmental stakeholders, are advocating for a range of changes aimed at addressing these challenges. While some of its recommendations relate to the courts and legal process, there is considerable focus on transparency with respect to the setting of premiums and settlement of claims, underscoring a lack of trust that premiums and claims are fairly and equitably managed by insurers.

Government of Ireland Insurance Reform

In response to these recommendations and in line with its commitment in the Programme for Government, the Government published its ‘Action Plan for Insurance Reform’ in December 2020. The cost of insurance and challenges in obtaining insurance are amongst the matters identified as needing addressed. The action plan sets out a variety of proposed legislative measures designed to drive the required reform along with a commitment to legislate, where required, to support measures recommended by the CBI. One of these components, the Consumer Insurance Contracts Act 2019, came into force last year and it is still too soon to see how its ambition to strengthen the hand of the consumer will impact on the current ecosystem.

At the time of writing, mid-January 2021, the landmark ruling of the Appeal to the Supreme Court in the UK of the test case by the FCA and the Hiscox Action Group has largely found in favour of customers denying the appeals of the industry participants. Noting the variations in wordings and circumstances that exist and the sensitive and legal nature of claims it is hard not to see how the analysis and ruling will inform assessments more widely.

Many Irish firms with a regulated presence in the UK have utilised their experience of the equivalent UK regime to prepare for SEAR.

The Central Bank of Ireland and Conduct Regulation

The CBI, for its part, has recently reaffirmed its expectation that firms adopt an appropriately customer-centric culture, in the context of a number of diverse initiatives. For example, in its Business Interruption Insurance Supervisory Framework (August 2020), the CBI directed firms to take the interpretation most favourable to the customer in situations where policy wording was unclear or ambiguous. Furthermore, insurers are required to consider customers’ interpretation of their broader customer engagement and whether there is evidence of conflicting interpretations in customer complaints.

Similarly, the CBI has also flagged cultural shortcomings in its ongoing review of differential pricing in the car and home insurance markets. Although the CBI’s final recommendations to Government are not expected until later in 2021, its ‘Dear CEO’ letter to insurers in September 2020 highlighted the lack of a ‘consumer focused culture in respect of pricing decisions and practices.’ In this context, the CBI directed firms to immediately:

  • “Take responsibility at Board level for the impact of differential pricing on customers. Put a robust governance framework in place, where Board and management structures are designed to ensure a firm’s pricing practices are well-governed, controls operate effectively and appropriate oversight is in place, with roles and responsibilities for pricing activities clearly defined”; and
  • “Ensure that a fully embedded consumer protection risk framework is in place to manage conduct risk and drive positive behaviours. This framework should form an integral part of the pricing process, and will assist firms in determining if their pricing processes, including the deployment of new pricing models and monitoring of existing models, is ensuring fair treatment of customers in line with the Consumer Protection Code 2012.”

These imperatives were echoed in a speech to the industry in November 2020, in which CBI Director of Insurance Supervision Domhnall Cullinan remarked that cultural change, combined with greater transparency and individual accountability, is fundamental to rebuilding consumer trust. While there were some early indications that the CBI’s anticipated Senior Executive Accountability Regime (SEAR), which is expected later in 2021, would initially focus on the banking sector there is now every expectation that its scope will include significant firms in all sectors, including insurance – thus driving the individual accountability to which Mr Cullinan alluded. Many Irish firms with a regulated presence in the UK have utilised their experience of the equivalent UK regime to prepare for SEAR, while paying due attention to compliance with the existing Fitness & Probity regime, compliance with which continues to fall short of the CBI’s expectations.

The industry must demonstrate that it can internalise and accelerate this change agenda without being cajoled and micro-managed by the regulator.

Rebuilding Trust by Moving from a ‘Compliance’ to a ‘Conduct’ Mindset

Of particular resonance in Domhnall Cullinan’s November 2020 speech to the industry was his observation that the insurance industry has tended to rationalise and explain away governance failures identified by the CBI. This failure to adopt and evolve to a customer-centric and conduct-led mindset is reflected in industry frustrations with what is seen as the CBI’s tendency to ‘move the goalposts’ or regulate retrospectively. However, such a frustration is potentially evidence of a narrow and legalistic approach ensuring ‘bare-minimum’ compliance with specific regulatory requirements.

Firms trying to make the transition to a customer-centric culture can benefit from challenging decisions against the general principles of the Consumer Protection Code, and regularly questioning whether product and pricing decisions are demonstrably in the best interests of customers and the market and if product information is sufficiently clear with key information being brought to the attention of the customer. Firms that fail to do so are likely to face regular admonishment from the CBI, whether that be in the context of product governance, differential pricing or the management of business interruption claims.

This change in mindset and culture must be driven from the top and will only succeed when it is internalised from top to bottom within an organisation. This is what the CBI means by ‘a collective understanding of what consumer focus means’ and ‘embedded consumer focus in structures, processes and systems’.

Firms must avoid direct or indirect incentivisation of behaviours which run contrary to these goals. This can assist firms in moving away from the traditional and ineffective first and second line dynamic whereby compliance functions must continually perform the function of ‘a brake’ on the product and pricing ambitions of the business. Compliance should continue to perform an advisory role with respect to regulatory requirements and expectations. However, where firms have genuinely fostered a consumer-centric mindset, they should increasingly find that product and pricing proposals from the business have been designed with regulatory and consumer imperatives in mind, with product owners assuming that responsibility from the outset based on an understanding and internalisation of same.


General insurers play a pivotal role in Irish society. Furthermore, the sector has a role to play in assisting current and future challenges such as those deriving from the Covid-19 pandemic and from climate change. It is difficult to envisage constructive engagement between Government, the regulator, customers and the industry to tackle these major challenges that lie before us, in circumstances where the sector is perceived as:

  • Adding little value beyond the provision of government or lender mandated products (i.e. motor and home insurance); and,
  • Being motivated by a narrow focus on short-term profitability only and not the needs of its customers and stakeholders more broadly.

However, there is evidence that attitudes are changing – driven by a combination of internal motivation and external pressure – and that the sector can move towards the conduct and culture expectations of the Central Bank. The industry must demonstrate that it can internalise and accelerate this change agenda without being cajoled and micro-managed by the regulator. If firms can demonstrate a move towards a ‘conduct’ rather than a ‘compliance’ mentality, it will be an important step in demonstrating that the industry warrants the trust of its stakeholders in playing a collaborative role in delivering societal needs now and into the future.

This article first appeared in the February 2021 edition of Finance Dublin. Don’t hesitate to reach out with any questions.