The Next Frontier in Customer Service: Helping Insureds Manage Their Risks by Building Corporate Compliance Programs
By looking to other industries for inspiration, one may find the next great idea for expanding customer service opportunities just around the corner. For example, in the financial world, the U.S. Department of Labor implemented a regulation on June 9, 2017, elevating the responsibility of financial professionals who work with retirement plans to the level of fiduciaries, which requires professionals to act in the "best interest" of their clients, as opposed to acting in a way that is merely "suitable."1
Even without a regulatory requirement, many professionals have long embraced the "fiduciary" standard as a means for servicing clients. For example, Charles Schwab built an entire network of independent advisory firms, touting transparency and independence from any particular fund or investment. Other advisory firms, like Fidelity Investments, have released educational pieces discussing the importance of hiring a "fiduciary." The media also has played a key role. As a result, "fiduciary responsibility is [now] the top reason plan sponsors start using retirement advisors."2
Such success in the financial industry now highlights an opportunity for insurers. Specifically, can insurers help insureds control their own insurance destinies by helping them build internal programs that reduce their risks? This prospect is promising. A corporate compliance program that helps an insured minimize the very risks covered by an insurance policy will reduce not only premiums but also overall claim exposure – thereby maximizing the value of the policy to the insured.
Though some insurers already offer their insureds risk management services relating to property damage, personal injury accidents, and other casualties, corporate compliance could be the answer for providing additional value to insureds. These additional services could be particularly valuable to certain insurers, such as those offering employment practices liability insurance (EPLI), directors and officers (D&O) liability insurance, and/or crime and fidelity insurance policies.
Before turning to how a corporate compliance program could benefit these types of policies, one must first understand corporate compliance and how it differs from a purely regulatory compliance program. At its core, a corporate compliance program is intended to detect and prevent improper conduct as well as promote adherence to the organization’s legal and ethical obligations. In 1991, the U.S. Sentencing Commission established "the most recognized standards" for creating an effective corporate compliance program within its sentencing guidelines manual.3 These guidelines have been used by organizations to design and implement their programs.
And while no one-size-fits-all program exists, given that corporate culture plays a critical role, there are seven basic building blocks any effective corporate compliance program must have, including:
- Establishing standards and procedures to prevent and detect improper conduct
- Ensuring that leadership understands the content and operation of the compliance program and exercises reasonable oversight with respect to its implementation and effectiveness;
- Enforcing the standards and procedures equally across the organization and its constituents, including executives;
- Taking reasonable steps to periodically communicate the standards and procedures to employees by conducting effective training programs and otherwise disseminating information appropriate to each individual’s respective roles and responsibilities;
- Taking reasonable steps to ensure that the organization’s compliance program is followed and its effectiveness is periodically evaluated;
- Promoting and enforcing the program consistently throughout the organization by using appropriate incentives and corresponding disciplinary measures; and
- Taking reasonable steps to respond appropriately to improper conduct and to prevent similar conduct.
Although EPLI, D&O, and crime and fidelity are all insurance policies relating to risks arising from conduct by an insured’s own employees, each covers different situations. First, EPLI liability insurance covers businesses against claims of sexual harassment, discrimination, and wrongful termination, for example, brought by the insured’s own employees. Second, D&O liability insurance covers directors and officers for claims arising from the decisions and actions taken within the scope of those directors’ and officers’ regular duties. Third, crime and fidelity, which is a form of property insurance, covers losses relating to employee dishonesty, such as credit card forgery, computer fraud and theft, and the disappearance or destruction of property.
By applying the seven steps outlined in the federal sentencing guidelines to the specific risks covered by these policies, insurers can provide insureds guidance for building a customized corporate compliance program to allow insureds to take greater control over their own insurance destinies. To lower EPLI risk, for example, the program can implement best practices for handling key employment issues, such as terminations and investigations for claims of sexual harassment, which then can be coupled with regular trainings. To reduce the risks associated with D&O insurance, an effective corporate compliance program could require management to (1) host regular trainings on best practices for governance, (2) provide written documentation of decisions, and (3) hold directors accountable for informed decision-making.
It is important to remember that the key to any successful corporate compliance program is to create something more than a simple "check the box" system. Rather, an effective program flows through a company’s corporate culture, which must elevate compliance and ethical decision-making as non-negotiable.
Collaborating with insureds to help build corporate compliance programs could be the insurance industry’s response to the financial industry’s customer service strategy under the fiduciary standard. It is a novel concept allowing trailblazing insurers to continue reaping great rewards by setting themselves apart as "unique" and by anticipating the business needs of their clients.
1 See 29 CFR 2510.3-21 (fiduciary regulation); 82 FR 16902 (implementation date).
2 For the First Time, Fiduciary Responsibility Tops Plan Sponsors’ Reasons for Hiring Advisors, Fidelity (Aug. 17, 2016), available at https://www.fidelity.com/about-fidelity/institutional-investment-management/fiduciary-responsibility-tops-plan.
3 See Chapter Eight – Sentencing for Organization, Guidelines Manual, U.S. Sentencing Commission (Nov. 1, 2016), available at http://www.ussc.gov/guidelines/2016-guidelines-manual/2016-chapter-8; Evaluation of Corporate Compliance Programs, Fraud Section, Criminal Division, U.S. Department of Justice (Feb. 8, 2017), available at https://www.justice.gov/criminal-fraud/page/file/937501/download.
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