CULTURE
A sober look at non-financial misconduct: the problems run deeper than boozy lunches
For much of the last year, people haven’t been able to go to the pub, but a new report suggests that this has not solved insurers’ problems with non-financial misconduct. Perception is reality for the industry when it comes to bullying, harassment, and other issues, a Re/insurance Lounge panel heard.
Problems around inappropriate workplace behaviour have been in the spotlight since the Lloyd’s clampdown in 2019. At that time, it banned anyone under the influence of alcohol or drugs from entering what, according to the BBC, was the “last bastion of the financial district’s boozy culture”. That followed a day-time drinking ban for staff introduced (if sometimes ignored) in 2017.
The logic was simple: as Lloyd’s explained in 2017 in an internal memo to staff, about half of grievance and disciplinary cases were related to alcohol. Presumably, then, with lockdowns in place and bars closed, insurers have seen far fewer problems in the last year or so.
Possibly not, according to Jeremy Irving, head of financial services at law firm Browne Jacobson, a recent guest of Intelligent Insurer’s online, on-demand hub, the Re/insurance Lounge. Irving came to the Lounge to discuss his firm’s latest report on conduct and culture in the insurance industry during the pandemic.
Online tensions
The report, “Reflections Caught: Culture, Conduct and Covid 2020–2021”, found that, while firms have increased their efforts to prevent or deter it over the last year, the risks of misconduct have only grown.
As Irving explained, that’s at least partly due to regulatory interest from the UK Prudential Regulation Authority (PRA) and Financial Conduct Authority FCA.
“The culture of the London Market has been under the regulatory spotlight for some time,” he said. The report from Lloyd’s raised issues, particularly around alcohol consumption within the marketplace and the inappropriate behaviour that flowed from that. This was then picked up by the PRA and further expanded on by the FCA.
In January 2020, the FCA wrote a “Dear CEO” letter to general insurance wholesalers warning that “non-financial misconduct and an unhealthy culture is a key root cause of harm”. It ended the year banning three men convicted of sexual offences from working in the financial services sector ever again, effectively confirming that non-financial misconduct is misconduct.
“Ninety-four percent of those interviewed said they thought the likelihood of misconduct by individuals at their firm had increased.”
Jeremy Irving, Browne Jacobson
“The overall context of this report is the regulators shining a spotlight on a part of the financial services market that they previously hadn’t focused on quite so strongly,” said Irving.
It is at least in part due to the pandemic, the report says. Overall, 94 percent of those interviewed said they thought the likelihood of misconduct by individuals at their firm had increased, and 60 percent said this resulted from COVID-19 and remote working.
“Working from home has driven a sense of distance and a concern among employees who perhaps aren’t able to reach out to their line managers or co-workers,” said Irving.
“It’s also possible—although we don’t have the data for it—that it’s due to some of the features of the remote working culture that were reported on quite widely,” he added.
That includes being constantly online, demands from managers outside business hours and perhaps an over-reliance on written communications in the absence of face-to-face contact.
“It could be that some were communicating more aggressively and assertively in the form of email and creating tensions and difficulties for their co-workers."
All in the mind?
There is a question of whether people’s perceptions match up with reality. For a start, the findings come despite firms putting significant effort into tackling non-financial misconduct. Nearly all those surveyed (96 percent) reported that firms had increased efforts in the last 12 months to prevent or deter inappropriate behaviour.
Moreover, there was a significant mismatch between how employees view efforts and attitudes at their own firms and those of others: 82 percent said that their firm always looked to pursue the maximum legally permissible disciplinary sanctions against any manager who was abusive, bullying or harassing; only 68 percent said they thought this was true of other firms.
“The study is very much a survey of perceptions. We don’t seek to say that it’s proof that any of these perceptions are objectively verifiable,” said Irving.
On one hand, this may mean that the reality is better—or worse—than reported by those surveyed. On the other hand, as the report points out, the perception alone is a problem. It risks making it more challenging to recruit and retain personnel; could reduce commitment to initiatives for change; and may make investors more hesitant.
“As a whole, the market has a reasonably downbeat view of itself.”
The perceptions are likely to have at least some basis in reality, Irving believes. “The very fact that these perceptions exist is indicative of a culture within firms and within the marketplace, and can tell us quite a bit about potential risks,” he said.
The disparity between what employees see in their own firms and what they suspect of others is also telling.
“It does suggest that, as a whole, the market has a reasonably downbeat view of itself,” he added.
Even where firms’ efforts are recognised, staff are rather cynical about their motivations, the survey found. Almost all said that firms’ efforts to prevent misconduct were guided by their impact on financial performance and fear of legal or regulatory liabilities.
“What didn’t come across was any great sense that issues around non-financial misconduct and conduct risk are an ethical question,” said Irving. “Bearing in mind we’re talking about potentially bullying, harassment and abuse of authority, it seems from the perception within our sample that looking at these issues in ethical terms is not high on firms’ agendas.”
That could ultimately put them on a collision course with regulators.
“You may say ‘well, it’s perfectly reasonable because these are commercial entities’, and their purpose is to be financially successful. But it does raise some interesting questions about the direction of travel for regulation, which is focusing more on environmental, social and corporate governance considerations,” he explained.
“Regulators seem to be pushing firms more towards taking decisions to manage those risks effectively, even if there is potentially a short-term financial downside,” he added.
Those that put finances first now could find that they just pay more later.
To view the full Re/insurance Lounge interview click here
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