The following is part of a Speech delivered by Karina McTeague, Director of General Insurance and Conduct Specialists Supervision, at the British Insurance Brokers’ Association (BIBA) Conference 2019.
A customer-focused culture
Culture is an acknowledged key root cause of the major conduct failings across financial services in recent history.
My initial impression is that the insurance industry is on a similar journey that the banks have been on, albeit insurance is arguably progressing more slowly in relation to maturity of understanding and implementation of the FCA’s conduct agenda, in particular culture.
The follow up question I’m then usually asked is ‘Why do I think there is that lag?’
I suggest two reasons:
- Firstly, the financial crisis has put banks under the spotlight, revealing behaviours which have caused public indignation. This has created a burning platform for cultural change in banking.
- Secondly, the SM&CR, which was applied to banks back in 2016, has clarified responsibility and accountability at senior management level.
Culture is an acknowledged key root cause of the major conduct failings across financial services in recent history.
We all know in business that successful delivery usually goes hand in hand with a healthy firm culture, that delivers good consumer outcomes. This is why we focus on four drivers of culture through our approach to supervision:
- purpose
- leadership
- approach to rewarding and managing people
- governance
My wish is that the insurance sector can make a step change in its approach to conduct and culture, with the support of the SM&CR.
As an organisation, we will support firms to make that step change towards embedding a healthy culture, with customers at its heart, drawing on the lessons of the banks, and hopefully avoiding their mis-steps.
So, what are some of those lessons?
Set the tone from the top. Have a clearly articulated purpose and supporting values.
Match words and actions. Encourage and reward the behaviours and outcomes that align with your firm’s purpose and values.
Create a working environment which encourages everyone to speak up. Your staff should be the custodians of your firm’s reputation and integrity. The risk that poor behaviours or poor customer outcomes go undetected are reduced when everyone feels they can speak up. But ‘speaking up’ will only work when it goes hand in hand with ‘listening up’. If a firm fails to listen and react appropriately when someone has been brave enough to speak up, then their staff are much less likely to continue to speak up. On this point, let me plug a webinar we hosted in November last year on the topic of Psychological Safety.
This contains ideas on how even a small change can achieve positive change.
My wish is that the insurance sector can make a step change in its approach to conduct and culture, with the support of the SM&CR.
Whilst we undoubtedly encountered some initial resistance to the SM&CR, once firms in other sectors started to implement it, I was struck by how quickly Boards and Executive Committees welcomed the clarity of responsibilities and accountabilities that the SM&CR has given them.
This clarity is not simply a matter of regulatory compliance, it is also good business practice and beneficial for firms of all sizes.
Drawing on the lessons learned from rolling the regime out to banks and building societies, I hope you may find the following observations useful:
- Think beyond the implementation date. Gather together a multi-disciplinary team to plan how the regime will work as ‘business as usual’.
- Make sure everyone in your firm understands the Conduct Rules – and what those rules mean for them as individuals. These are the foundation stones that set the standards of behaviour for everyone in financial services.
- Most importantly, the SM&CR is about culture. We look to firms’ senior management to nurture healthy cultures in their firms that will reduce the risk of harm to customers.
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