Pros and cons of trade associations
Recent events at the ABI remind me of the nursery rhyme ten green bottles hanging on the wall and if one green bottle should accidentally fall….Although in the case of the ABI there are more bottles; three fell off – Scandia, BUPA and now Legal and General; and one jumped off by itself – the investment end of the ABI. So where is the ABI going and what are the implications for the role of the insurance industry in its relations with Government, the regulators and consumer bodies etc?
We can imagine a spectrum of possibilities with two extremes. One extreme would be that the ABI stays pretty much as it is. The changes I have mentioned are just a “blip”. The other extreme is gradual fragmentation into smaller trade bodies and many insurers increasing their individual lobbying strength in areas of special interest to them.
So what are the pros and cons for the industry of the blip end of the spectrum. The pros are a unified industry voice on policy and regulatory issues which the Government etc is likely to engage with; the ability to devise statements of best practice and thus avoid them being imposed on the industry through regulation; a unified response to changes that are imposed on the industry and also to “events” like potential miss-selling; and a Committee structure which works like a set of mini-trade associations and allows key individual members to address issues of concern. On the cons side we have the time taken to reach a unified decision which is frustrating for those taking part in the process and for the intended recipients; and statements of best practice which tend towards the lowest common denominator in order to reach agreement; Committees tend to be dominated by the biggest players and those not on them are frozen out of decision making; industry wide responses to events let really poor performers off the hook; and running the organisation requires a lot of staff and is very expensive.
Moving to the other end of the spectrum. The pros are individual companies can make their own running and can also work together through the smaller trade associations; these trade associations can be more open and include other sectors, for example distributers and consumer groups; competition drives performance beyond the lowest denominator and poor performers have nowhere to hide; the big players still have influence but smaller very innovative companies can also punch well above their weight; and innovative groups of companies can work together to influence change without having to worry about the laggards. On the cons side the industry is divided and Government and regulators can play one side off against the other; if companies want to punch at or above their weight they need to resource it; silo thinking develops and what might be in the interests of one group might not be in the interests of another.
Barry Johnson has defined and explored these tensions through a process known as “polarity management”. If the drift is away from the blip end of the spectrum the industry needs to think about how to preserve the best of that end and gain the advantage of the new set up and get rid of the worst of the blip end and avoid the down side of the new set up. Maybe the ABI needs to host an event to explore this paradox in more depth. There may be a direction of travel but it would be better for everyone to do that with their eyes wide open rather than just following the nursery rhyme.
Written by Richard Walsh, first published in Cover Magazine, October 2014