Fairness Survey Research by the Financial Markets Authority – what it means for insurance
The question of ‘what is fair?’ is one I find fascinating - as a business owner, parent, employer and member of society, I grapple with the subject daily. I bet the FMA’s researchers found this project to be interesting too. What the FMA has done is survey 2,988 people to rate how ‘fair’ they felt that different situations were. Those situations are a wide range of possible scenarios across a spread of financial products. Although only a small number directly mention insurance, the concepts from every question are relevant to those considering fair conduct programme design. Taking too long to process a refund, for example, is broadly applicable, as are more difficult subjects such as pricing for risk. There are also a couple of broader questions - think of them as a form of calibration for the reader. Before you dive into the report, I invite you to consider your answers to the following questions.
New Zealanders believe it is important...
… that everyone has the same opportunities in life (agree / disagree)
… people get the benefits or rewards in life that match how well they have worked (agree / disagree)
… people get the same benefits or rewards no matter how well they have worked (agree / disagree)
Once you’ve noted your answers down, consider that roughly four out of five people agreed with the first two points but only one in five people agreed with the last. Of course, freed of the constraints of merely stating a binary ‘agree’ or ‘disagree’, we might find situations where the answers vary. Which is why the scenarios and shades of agreement are a good approach to the balance of the work.
Each of the scenarios is fun. These are not quite trolley problem level conundrums, but some contain balancing factors which need consideration. When reviewing some scenarios I found it helpful to sometimes think about the spread of answers with challenge questions, such as ‘What’s my answer?’ of course, but also:
‘Can I think of a friend or colleague who would probably answer differently?’
‘Why would they do that?’
‘What if I subtract the one in five who believe in absolute equality of outcome from the agree column?’
‘If I changed the scenario in only one small way, would I get a substantially different answer?’
Overwhelmingly, though, the main use of the report is as a guide to what ‘most people’ think is fair in a wide range of situations that have applicability to financial services. That is very useful. It doesn’t always mean we have to change practice – if pricing for risk is considered unfair by a significant portion of the population, that probably tells us that we need to communicate better, rather than simply close the entire insurance industry.
Also, as a career insurance person, I cannot help but think that the issue of information asymmetry is well understood in our profession. But then again, I realise that given some of the ways we try to talk about insurance with our customers… maybe it isn’t. Publishing policy documents that come in around the hundred-page mark is not helping. The concept of ‘utmost good faith’ was given plenty of attention in my insurance study books back in 1988, but perhaps we too often think about that in terms of underwriting and selection, when it is applicable to fair conduct too.
Quotemonster takes seriously the challenges identified in comparability of insurance policies. It’s central to our mission to help advisers find better insurance by doing a good job of that. Understanding Fairness in Financial Services (fma.govt.nz)