These are interesting and challenging times in the world of insurance. With the travel industry brought to a grinding halt, and many other companies experiencing demand slumps, there's a lot of people reaching for their personal and commercial insurance policies to see what protection they have. No doubt insurance claim lines are seeing unprecedented traffic in these strange times.

But as many are now discovering, insurance policies don't provide unlimited protection. Whatever the policy holder imagined, the reality is that contracts of insurance specifically include and exclude plenty of things and sadly it's often only when the unthinkable happens that many people actually get to understand the detail contained within those documents, sat unread or carefully filed away.

While the Association of British Insurers (ABI) seeks to set out the contractual position, and explain the reasons why many business interruption policies might not cover the effects of COVID-19, there are calls in the media and across the political spectrum for insurers to "do the right thing" and deal with claims fairly and quickly. The ABI offers that only a small number of policies will likely cover loss, arguing that even where cover for loss as a result of pandemics exists within the policy, it might often be limited to named pandemics only and, for example, only cover business interruption due to business premises being directly affected by the presence of a disease.

Ultimately, what's "fair" is a subjective decision. When complaints go to the Financial Ombudsman Service its remit is to decide what's "fair and reasonable". That means that while contractual wordings are fundamental, they aren't considered in isolation.

The challenge for an insurer is to apply the right balance in the way it handles claims. That means deciding what claims it's reasonable to pay taking account of what policy holders were entitled to think was covered by their policy; based on how products were sold, what the parties' intentions were, the clarity of insurance documents, the wording of the contract and, no doubt, some corporate level economic and customer care policy considerations. Ultimately, though, what is fair? It will vary across claim and policy types and may differ substantially between individual claims.

At Entry-Exit Consultants we can help. With many years experience of leading the ombudsman service's handling of insurance disputes John has an unrivalled insight into the interpretation of insurance claims and deciding what's a fair and reasonable outcome. Whether you need to develop a policy approach across a body of claims or need help to handle individual potentially high value cases. John's unique combination of operational and policy-setting experience in high volume and complex complaints handling, and insurance disputes specifically, is available to support you.

In 2018 I was approached about an assignment that at first glance looked decidedly unattractive.

A consortium of Dutch gas producers was seeking to overturn a tariff decision that had already been reached by the regulatory authority on the basis of the evidence and agreement of two major pipeline operators. The decision was a relatively complex package of elements supported by a large and well-known international consultancy whose report, artfully combining best EU regulatory practice with the promise of benefits for all, had been met with almost universal acceptance. Except my prospective clients, who would end up paying more and wanted me to challenge some of the assumptions in the report to perhaps weaken the regulator's resolve. 

Aside from having to overcome language barriers in a complex technical area, my contacts in the industry were confident that the deal was done and the commission looked pointless. But the realisation that ordinary Dutch consumers were going to end up paying more money as the result of this scheme led me to take a closer look.

On first reading the report appeared persuasive. Setting out to streamline administration and facilitate international trade as well as appealing to EU regulatory objectives such as the expansion of the Dutch gas balancing zone. Its interlinked proposals included removing from the tariff map a seemingly “unnecessary” point of interconnection between one pipeline operator and another. A bit like taking the toll booth away from a motorway junction. On the face of it, smoothing the passage of traffic and reducing the need for yet another pricing calculation. But removing this toll would mean that the clients’ costs would go up elsewhere to cover that loss of revenue.

There were a number of parts to the package but as a whole the report sold the end product very well. It would facilitate cheaper virtual imports of gas as well as physical exports, and deliver efficiency savings for the whole regime. The report recognised the “unavoidable” consequential loss of revenue to the national pipeline operator, which would naturally enough have to be met by a “very small” increase on everybody else’s gas transport bills. The regulator had been persuaded by the net present benefit calculation of the whole deal.

We were expected to challenge the calculation of assumed benefits but what really interested me wasn't the accuracy of the report's conclusions, but the basis on which it had been commissioned in the first place. I started unpicking the premise of the report. What exactly had the consultant been asked to consider, and how free a hand did they have to look at a range of solutions to the problem posed by removal of the revenue associated with the interconnection point? It started to look like perhaps they had simply been given a solution – let the ordinary gas customer pay - and asked to justify it from a public interest perspective.  

I found myself recalling an old Forbes article on the science and marketing of bundling of products like TV packages. And more recently the scandal of the 2007/8 financial crisis and the role of collateralised debt obligations (CDOs). What these very disparate things had in common was that there'd been a bundling up of the good stuff with the bad stuff, and people had been persuaded to buy the package as a whole without looking too closely at all the constituent parts.

And then the penny dropped – break the package down and ask the question, why does each bit need to be included, what’s it actually costing, and for what value? And then, how could you put a different package together that delivers what is really needed at a fair price? Although there was still a lot of technical detail to address - such as theoretical arbitrage opportunities for virtual imports and physical exports of gas between two major traded hubs - the battle was essentially won from that moment of insight. In fact we didn’t even need to challenge the level of claimed benefits any more – we could simply use the report’s own values and achieve a better net present value by changing the package.

So whenever you're confronted with an expensive bundle tied up with a pretty ribbon, do some rummaging around before accepting it. The issue you need to consider isn't whether the end result is acceptable, or even attractive, but rather whether it delivers maximum potential by being  put together properly with consideration for ALL of its impacts. And if you're the one putting the package together? Well, ask yourself if it's really worth the reputational damage of alienating the customer, and whether you're truly meeting the spirit of your regulatory objectives, however clever the design and marketing of the bundle may be?

Brian Withington

I recently left the Financial Ombudsman Service where I spent 6 very interesting years.

After a career almost exclusively in the legal sector I got to see inside the financial services industry and learnt a lot, especially about the world of insurance. Seeing what affects consumers on an individual level is an excellent way to learn about the workings of what, otherwise, can appear to be huge and complex machines of the industry and parts of our economy and way of life that we might otherwise take for granted. As an ombudsman you get to follow the paths walked by consumers and understand the systems and methodology of the service provider - and how they affect real people. As a Senior Ombudsman I was able to follow through to take the lessons learned by my teams to promote change in industry through key stakeholders.

Because when things go wrong in finance, whether on a sytemic or purely individual basis, lives can be affected.

But I found that there was often an accidental detatchment between policy and decision making. I'd often, for example, see decisions at an individual level between insurer and policy holder, that senior people within the company wouldn't recognise. Perhaps a contract wording being applied in a way that the leadership hadn't forseen, or simply didn't agree with. But without a complaint being raised, being rejected, and only then coming to the Ombudsman the consumer would have suffered a detriment that nobody within the business would be aware of, or take note of. So the same problem would recur for other customers until something changed

I remember very early in my leadership career setting up a new unit for handling complaints. I'd just written the organisation's first complaints handling procedures and guidelines. We brought a consultant in to introduce the ethos of complaints handling and customer care to a group of our team leaders. And early on in the first presentation a phrase appeared on a slide that at the time I though was a bit trite. "A complaint is a gift" it said.

But I find that the phrase has stuck with me all of my career. The thing you learn that's really important is that it's only a gift if someone wants it. To some it's a curse! I've known organisations to talk about continuous improvement and the qualities of openness and honesty, yet to actively avoid asking the right questions internally to help understand whether it's actually achieving what it promotes.

In the short term it's easy to see complaints as a nuisance. They slow down the business, and crucially they can look bad on stats for leaders, boards and shareholders. So it really depends what one's motivations are.

What I think of as truly authentic leadership, is wanting to know everything that's not right with your organisation, rather than wanting to be told, and to retell, what's going well. 

That requires a couple of key things. Firstly, a lack of fear of what you might find when you turn over the stones. Simple to summarise but very difficult to achieve. Because it requires a level of self confidence that comes not only from personal strength and experience but also demands an environment in which others will allow you to do so. Few can create the space to find and fix problems if they're being judged on different data by others who don't share their values. And crucially it needs balance. Good leaders are curious about how to improve but know how to celebrate what's good, so seek also to "catch" people doing the right things.

And, secondly, it requires structure. Yes, good old fashioned procedures and disciplines that share the vision and lay out the methodology for capturing key information and acting upon it. That means people know the purpose of the work, what their own role in it is, what they need to do to achieve it, and how they should communicate their experiences. It means also reviewing the data, understanding and assessing risk, identifying learning and delivering activity to improve. 

So, the balance of structure AND culture is absolutely key to success. It's easy for an organisation to value one more than the other and to not make the most of its gifts.

John Withington