The Diversity Blog

Published in Autumn 2015 issue of INTdirector

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Stephen Rosling is Co-founder & Director of UK based  TCF Matters. Taking it beyond his interview of April 14, 2013 with this blog – he highlights the significance of conduct risk which tends to get lost in the dust and din of the marketplace. Conduct risk – a sum of systems, processes and most importantly people – will pose significant challenges to all markets notwithstanding whether or not they have a designated regulator in the market conduct space.

Q: Taking it from where we left it last, a poor consumer outcome amounts to poor delivery?

A: Yes, but poor delivery could be the result of poor product design, poor marketing, poor sales, poor claims handling. Poor delivery in just one of these areas can contribute towards a poor consumer outcome.

Q: Is the conduct merely about “consumer detriment arising from the wrong products ending up in the wrong hands, and the detriment to society of people not being able to get access to the right products”?

A: Customers expect and deserve to get financial services and products that meet their needs from firms that they can trust. Meeting customers’ fair and reasonable expectations should be the responsibility of firms. If the culture across the financial services “industry” is one where the customer needs are not being met, then the detriment to society is considerable.

However, “access” to the right products is not just about the responsibilities of firms, it also plays into education. Society must educate its people to help them understand how different types of financial products work so they can approach negotiations and discussions from a position of knowledge and understanding and therefore reduce the risk of being manipulated by unscrupulous firms. Education is the responsibility of government.

Q: Is it more to do with the intermediaries and the carriers only vicariously?

A: No – both product manufacturers and distributors have an equal responsibility to customers. Similarly, product manufacturers and distributors have a responsibility towards each other to ensure that they can each provide evidence that customers’ interests are at the heart of their corporate cultures.

Q: Could dis-intermediation in any ways change this situation?

A: Yes and No. The only real way to address issues of poor conduct is to understand the root cause. The root cause may not be the behaviour of the intermediary. Instead, it may be a poorly designed product and literature, or poor product training provided by the product manufacturer, or poor training of claims handling staff. Getting to the root cause is the key.

Q: Could the internet transform this into a “Buyer beware” situation?

A: Yes and No. Distributors and providers remain responsible for ensuring the information they provide on-line is clear, simple to understand and not mis-leading. “Cooling off” periods also apply giving customers the opportunity to re-consider their purchase and cancel if it is not suitable for their needs.

Q: Is conduct risk really a quantum shift of the regulatory process into the qualitative zone or is it merely a justification for the creation of a market conduct supervisory process?

A: I think this is a bit of a “chicken and egg” question….what came first? The increased regulation or the poor conduct? I would argue that increased regulation and more robust market supervisory processes only come about due the uncovering of poor conduct on the part of firms. If firms were behaving in a manner consistent with the principles of fair customer treatment, then you could argue that conduct regulation may not be required. I think the underlying point here is that many observers suggest that the poor behaviour of the “large” few has resulted in more regulation for the small “many.”

Q: Does the conduct risk pose any serious governance and regulatory risk to intermediaries and risk carriers in the insurance industry?

A: This all depends on understanding what governance is already in place and assessing how effective it is. Conduct regulation has not mandated the introduction of new committees over and above those which already exist; however, the focus on conduct has raised the bar in terms of the effectiveness of Risk Committees, Boards, NED’s etc. A key part of effective governance is being able to provide strong, robust evidence to support good conduct – the days of “no news is good news” are long gone.

Q: Does all this overlap with the ethics?

A: Absolutely – ethics, integrity, transparency, are all at the heart of good conduct. Ultimately, the behaviour of a firm reflects on the behaviour of its employees which is why embedding the right culture throughout the organisation is so important – systems, processes, and most importantly, people.

The late editor salutes the rise of women in television journalism in his last book:

“Another half a cheer for current – affairs TV is due. Not so long ago, women journalists were confined to the ghetto of fashion shows, flower shows and filmi shows. In the last few decades things have improved and a few have managed to crawl out of the ghetto. However, the most spectacular rise and rise of the young woman journalist has occurred in the time of current-affairs television. A disproportionate amount of reporting, including the thankless chowkidar duty outside the minister’s house where they wait for a sound bite from dawn to dusk, is done by young female reporters in the age group of twenty-five to thirty. They do the job with great patience and good humour.

But it is not restricted to asking a neta after he has supplied the required sound bite, ‘Thank you sir, but who are you?’ The serious reporting and analysis of major events is also the domain of their seniors. If you go to the offices of TV channels you will have difficulty finding a man. It is full of women of all ages busy with their work and clearly enjoying it. I once asked a young, bright, attractive reporter if she had a boyfriend. She replied she had just broken off a relationship because it was interfering with her work. She had her priorities right. TV 24×7, happily, is an unequal opportunity employer. And for once that inequality needs to be applauded.”

I am sure Mr. Mehta would be even happier with the rise of women journalists from just monopolizing serious reporting and analysis to their dominance as anchors. May the glass ceiling go!

Mr. Ganesh K V, Chief Financial Officer, Global Head-Legal & Company Secretary, Subex Limited, Banglore, India, oversees the corporate finance, treasury, taxation and legal functions across the Globe. He has more than two decades experience of leading Finance function of conglomerates like Hewlett Packard, HSBC and HCL Technologies Limited.

 Nirmala Menon is the Founder and CEO of Interweave Consulting (www.interweave.in). A consulting service focussed exclusively in the area of Diversity and Inclusion solutions for organisations.

“Something Else for J.K. Rowling to Feel Good About”

Quoting the HBR, “A study in two nations of students of various ages demonstrates that reading or listening to the Harry Potter novels and identifying with the main character increase tolerance of stigmatized groups, says a team led by Loris Vezzali of the University of Modena in Italy. For example, Italian elementary school children who listened to passages from the books over six weeks showed improved attitudes toward immigrants. In the books, which have sold more than 450 million copies worldwide, the hero is angered by discrimination, such as when Hermione Granger, who isn’t a pure-blood witch, is insulted as a “filthy little Mudblood.”

Possible lessons learnt:

• Critical role of appropriate role models during impressionable age
• Embedding story telling as a part of influencing diverse societies to be tolerant towards each other
• Influential leaders to consciously build on this mission

Terrorism into the mainstream of human consciousness

“Following the terror attacks in France, Western governments should avoid the temptation to see relations with MENA solely through the lens of counterterrorism, writes Jane Kinninmont. The attacks have prompted renewed denouncements of multiculturalism in some quarters, but the mood could ultimately support political parties that resist populism, writes Quentin Peel.” (Source: Chatham House).

Suddenly terrorism is neither just headline news nor flying into the face of common man but very much in the mainstream of human consciousness. Like a mutating virus defying mankind’s comprehension, its forms and spread seem at this moment to be challenging all of humanity. Just when it seems unstoppable, should insurers not re-visit their approach? Perhaps segment it to anticipate the evolving differentiation and rather just react also participate in prevention as well as mitigation. Revisit they must, as terrorism is a potential peril in any every form of cover across the non-life and life spectrums. In every which form it has a very high profile and strong socio-political ramifications both in the real and virtual space.

What next?

The first wake-up call by the ‘T’ factor in India goes back to the 1984 post Indira Gandhi assassination riots. Insurers expanded the Riot Strike Malicious Damage (RSMD) cover to an RSMTD. It took another 17 years for the next trigger in the form of 9/11 to create a Terrorism Pool in India. Just then the US created a TRIA (Terrorism Risk Insurance Act) as a means of a sovereign backing to its assets against terrorist acts. Terrorism cover predominantly remains coverage against lives and property. It needs to go beyond both in terms of scope, prevention and mitigation. Insurers ought to diversify their thought and action beyond the traditional realm.

Emerging segments

There is a growing demand world-wide for Cyber & Chemical/ Biological cover as a result of these types of terrorist attacks. There are a handful of select markets, particularly at the Lloyd’s, one of the pre-eminent hubs for specialist classes, who do offer this cover. However, coverages by most traditional carriers contain very robust & absolute exclusions regarding both Cyber, & Nuclear/ChemBio/ Radioactive coverages.

In relative terms to the wider market, say the experts in the field, this type of cover in the Terrorism sector specifically is still in its ‘infancy’ when it comes to fully understanding the exposures, implications & how to measure them in terms of safeguards, protections & aggregate management. The rest of the market continues to ponder and explore over recent years whether they ought to launch into this field, they do not seem to have got to the stage where they feel totally convinced about their readiness to justify such a big step that could have potentially ‘unquantifiable’ implications for them.

Insurers need to change the tack

Rather than just embark upon what is insurable and maintain a clear line of divide vis-à-vis all that is uninsurable, insurers need to accept terrorism as a fact of life. In the foreseeable future this will be one trigger that has the potential for generating significant ‘socio-economic’ losses. With the state slowly but steadily getting its upper hand over big events, terrorist acts will perhaps assume a low severity (in terms of asset class) but high implication (as in cyber or bio chem classes) and high frequency. Even in a traditional low severity scenario the non-financial implications could be high. Imagine the trauma caused to the sensitive segments of any society. Hence this allusion to ‘socio-economic’ rather than mere economic losses.

Some of the specialist markets do underwrite Terrorism Liability, but these usually contain the standard exclusion along the lines of “mental injury, anguish or shock where no bodily injury has occurred to the litigant”. It is interesting that not all specialist terrorism markets offer liability cover (it’s probably about 50/50, according to the experts). They believe that there is to date no sound case law for such cover (as it is a relatively new product in insurance terms which only really formally emerged quite a while after the 9/11 events). Interestingly, feel some observers that there is currently a case underway (not sure in which court jurisdiction) where a foreigner is apparently suing a prominent hotel as a result of him jumping out of a window during the 2008 Mumbai attacks, ‘but whether anything will ever come of this is hard to gauge’, says an expert. In his opinion “it can be extremely difficult to prove negligence or liability for ‘damage’ following such events, even if the defendant did not have effective security protections in place at the time.”

Insurers also need to participate in the distant early warning protocols which could alert not just them but society at large about future potential signals and triggers. Take for instance the excessive use of ground water to boost the cotton cultivation in Salamieh region of Syria. Followed by a drought and mass migration to urban areas, the unemployed economic refugees became a fodder for the socio-political uprising fuelling its own form of middle – east terrorism. A close cooperation between agriculture  and micro insurers could have set the alarm ringing for the terrorism underwriters whether or not it was about to precipitate something insurable in the present.

In the realm of SciFi

Picking a few of Ray Kurzweil’s predictions:

• 2030s: Virtual reality will begin to feel 100% real. We will be able to upload our mind/consciousness by the end of the decade
• 2040s: Non-biological intelligence will be a billion times more capable than biological intelligence. Nanotech foglets will be able to make food out of thin air and create any object in the physical world at whim
• 2045s: We will multiply our intelligence a billion fold by linking wirelessly from our neocortex to a synthetic neocortex in the cloud

We are not talking about too distant a future nor does it call for high imagination to figure out how an evil intent could terrorise such extra-ordinary capabilities.

In conclusion

While most insurers would stick to this as a generally acceptable global definition for a terrorist act:

“….. acting alone or on behalf of or in connection with any organisation(s), committed for political, religious or ideological purposes including the intention to influence any government and/or to put the public in fear for such purposes”.

This in no way casts the current coverage and role of insurers in stone. In very many ways here could be an opportunity for insurers to play a more significant mainstream societal role in pre-empting and mitigating the scourge of terrorism. Whether or not they choose to underwrite it they could still warm up as risk managers, while it holds its sway now and in the predictable future.

“History sometimes leaves no traces” and certainly in what seems on the face of it a very mundane theme, the author’s engaging research finds the links and trails that lead us to a fabulous story.

“That I gathered enough courage to make this attempt to unpeel the centuries…” perhaps is the essence of not just what the author Navtej did in putting together his latest work “Indians At Herod’s Gate: A Jerusalem Tale”, but also what it did to him and the reader as well.

“History sometimes leaves no traces” and certainly in what seems on the face of it a very mundane theme, the author’s engaging research finds the links and trails that lead us to a fabulous story. Soon after landing in Tel Aviv as the country’s ambassador he hears about Baba Farid’s Hospice in Jerusalem. A seed for the next book is safely lodged in the fertile and curious recesses of a creative mind.

It is the integrity, character and the conviction that reveals the several personae of the author, a man on an otherwise ambassadorial role knocking on the doors of ‘Zawiya al-Hindiya’ or the Indian Hospice, an Indian presence in the middle of old Jerusalem.

I was privileged to have gone sightseeing around the Holy City with Navtej while this book was in the making. As I read the book, each word takes me back to him narrating the story. It often meanders into the direction of our discussions. For instance, could Guru Nanak in his time, like Sufi Saint Baba Farid on his way back and forth Mecca, too have stopped by at the Indian Hospice?

It is not just an account of a care-taking family’s heroic deeds, in whose courtyard flies an Indian flag, amidst one of the most troubled spots in the world. Nor is it just an account of some 800 plus years of history around the lanes and by-lanes of the Zawiya but an inquisitive mind risking itself, seeking the threads to weave an extraordinary account, in a volatile backdrop.

Amongst many an unpeeling that go on in my head – as I read the account – are things from my long past, my visit to Israel and everything else. There is ‘Oh Jerusalem’; ‘Exodus’; Ben Hur; Ten Commandments; Bethlehem and the tour guide Isa who wonders why must I wish to visit the Church of Nativity if I am not baptized; Judean Desert; Masada; Dead Sea; Sea of Galilee; food, olives and wine at the Kibbutz; Marathi speaking Jewish driver-cum-guide; Retired tank commander’s (now a high profile travel coordinator; gave me an option of 14 languages to facilitate my tour!) woes with Indian tourists; Curious youngsters who had or wished to visit India; Stunning Mediterranean expanse off Herzelia; Haifa’s classy art decos; Zubin Mehta and his afternoon concert; Rampart Walk; Indian Hospice; and American Colony Hotel.

You could take a boat from Karachi to Basra and drive via Baghdad to Jerusalem. When Jerusalem was a magnet for the mystics and a must on the Mystic Route, wherever it started or ended!

Waves after waves of mixed feelings of times when there were fewer political boundaries, travel was far less complicated and despite its cycles of civilisational ups and downs it was not really a perennial hotspot of disruption. You could take a boat from Karachi to Basra and drive via Baghdad to Jerusalem. When Jerusalem was a magnet for the mystics and a must on the Mystic Route, wherever it started or ended!

The author paints his canvas on a man from Saharanpur, who due to a dramatic turn of events, lands in the Holy city of three major religions. All to become the Sheikh of a slice of India that has drifted miles away from the conscience of the subcontinent.  A refuge for Indian pilgrims right from the medieval times and its soldiers during the great wars. What a lovely depiction.

While Navtej in his modesty gives credit to the friendship, cooperation and knowledge of many people for making the book possible, he is silent and self-effacing in what else went into this creation. To the discerning eye the layers underneath the diplomat – be these the writer, journalist, historian, archaeologist, researcher and a statesman – would be hard to miss!

Hannah Devlin, Science Editor at The Times, recently reported that robots could be granted legal “personhood” under recommendations made to the European parliament on how intelligent robotic systems should be governed in the future.

Is there a broad spectrum of differentiation emerging ranging from personhood to humanhood with robots, chimpanzees and cetaceans adding to the growing list? How may it impact first mover, the Homo sapiens is anybody’s guess?

It may be desirable for robotic companions to carry out financial transactions independently, which would require them to have a legal status similar to that of a corporation. Robots could also be held liable for damage to property or injuries they cause, to shield the owner from financial responsibility, the review document suggests.

“At the moment robots can only act as ‘mere tools’, meaning the legal responsibility for the robot’s actions rests with its human ‘master’. This might restrict robotic companions for the elderly and make it hard for them to buy groceries, collect medication or carry out bank transactions on their owner’s behalf.”

Dr Andrea Bertolini, of Scuola Superiore Sant’Anna in Pisa, who helped draft the recommendations according to The Times, said they reflected the changing roles of robots in society. “In Pisa, they are developing a robot that is capable of travelling from your home to the grocery store and paying for goods that it needs. In cases like this you may want to consider the robot as a legal person that is able to enter into a contract”, he said.

“The recommended changes in status were purely technical rather than an endorsement of robot rights or a suggestion that robots would be genuinely autonomous.” He added, “There are futurists who talk about the rights to marry robots – that’s not what we’re getting into”.

The European Commission asked the RoboLaw consortium to look at how robotic and human enhancement technologies could be safely and successfully introduced into society. Presenting their findings to the European parliament recently, the authors said that the lack of appropriate regulations might be stifling progress in robotics already, according to Devlin.

“The question of who pays for damages is the largest obstacle to driverless vehicles in our society”, according to Dr Bertolini. “Driverless cars could reduce accidents by 97 per cent”, he believes, “but under present legislation the manufacturer could be liable for accidents”.

Devlin also quotes Julia Reda, a German MEP who believes robot governance is still seen as “fringe interest” despite their having a big impact. “It’s important that robolaw becomes a political discussion at an early stage,” she said. “Some things that might seem extremely weird to us now could become beneficial in the near future.”

While humans navigate through this evolving humanhood / personhood dilemma (hopefully welcoming the emerging diversity) and robolawyers pen their script, insurers and HR professionals must get their act right in dealing with what’s set to become an increasingly vigorous knock on their doors.

Published in the Journal of Insurance Institute of India, July-September 2014