At our last Insurance NED roundtable, we discussed NEDs’ thoughts on the risk of different functions within the business working in “silos”.
Why is this such an issue?
For an insurance firm to be competitive, it needs to learn rapidly from experience eg are we achieving our target business mix, are our premium rates proving adequate, are our reserves holding up well over time? In order to do this, the different business functions (pricing, claims, actuarial, risk, finance) need to be communicating effectively and not working independently of each other.
At our roundtable, NEDs felt that the risk of siloing had been exacerbated over the last year due to remote working.
Remote working has made the issue of silos worse. Key informal communication across the company has tapered off.
Working in silos can clearly bring serious risks (eg anti-selection, under-pricing, under-reserving) but it can also result in duplication of work, failure to work towards the agreed business strategy, and a whole host of other problems.
How can the Board help with managing this issue?
NEDs had a number of helpful suggestions for how best to combat the risks of siloing, including the following:
- Promote a unified culture right from the top: The NEDs unanimously agreed that by the management displaying a unified front, this would filter down to the rest of the organisation in the form of a positive culture and mindset. Having a culture of openness and willingness to learn from each other within the senior leadership would translate into departments embracing this style of working together as a united team.
- Boards can ensure representation across key functions at meetings. For example, ideally boards would have someone from the reserving, pricing, claims, finance and risk teams presenting at board meetings. This would ensure viewpoints from various angles are being heard on common issues, eg on COVID-19 or inflation, which impacts all of these functions in some capacity.
- Boards can commission deep dive investigations spanning different functions. These are likely to highlight and help address gaps in communication between departments.
- Regular inter-function catch-ups: this is particularly applicable in the virtual world, where those impromptu catch-ups between teams who do not naturally work closely together are non-existent. Having quick regular catch‑ups with between various teams eg between the reserving actuaries and claims teams, would mean that any anecdotal information seen by the claims team can be reflected in the reserves. Similarly, catch-ups between the claims and pricing team would ensure the pricing team is factoring in any trends being observed by the claims team.
These are just some of the solutions that we discussed. Approaches will vary by firm depending on their size, circumstances and culture. Larger multinational firms have even tougher siloing challenges, although they also tend to be more aware of the risks.
It was encouraging to see how NEDs are committed to breaking down silos within their firms and keen to lead by example.
Please get in touch with me if you would like to join our next Insurance NED roundtable.