Navigating the insurance ‘culture wars’ – Insurance Business

August 8, 2022 Kim Martel

Even after State Farm cut ties with the project under pressure in May, criticism continued.

The end of the collaboration was welcomed by Florida Governor Ron de Santiis and Senator Tom Cotton of Arkansas – according to Cotton the “vast majority of State Farm employees – just like most Americans – “don’t want schools indoctrinating five-year-old kids with gender ideology”, Bloomberg reported.

It drew ire, however, from the Illinois General Assembly LGBTQ Caucus, which in a statement labelled State Farm’s actions a “direct contradiction to [the insurer’s] purported values.”

It was also not well received by fledgling LGBTQ+ insurance employee group, Link USA, the co-chair of which accused the carrier of “putting profit over people and leaning into unfounded fears”.

Nor was the move enough to end the viral campaign against it. Consumers’ Research, of which other targets include Blackrock and American Express, has continued to push the “creepy neighbor” campaign.

State Farm is not alone in juggling pressure from all sides. US businesses are struggling to keep consumers and other stakeholders at ease and in balance.

Company stakeholders are not limited to the board, investors, staff, and customers. They can also include non-governmental organizations and activists, litigators, vendors, creditors, and regulators. Each may take a very different view to one another.

Disagreements may have always existed, but businesses have a tougher time keeping bad publicity out of the limelight since the onset of social media, which has also spurred campaign tactics and mass sharing in a click. Meanwhile, in recent years the US has experienced a pandemic, the rapid acceleration of Black Lives Matter, the MeToo movement, LGBTQI+ developments – from greater visibility to Florida’s ‘Don’t Say Gay’ Bill, and the Roe v Wade decision.

“I think that’s enough major crises in three years,” was how Nir Kossovsky, CEO of Steel City Re, a parametric ESG and reputation insurance provider based in Pittsburgh, put it.

From shareholders’ quarrels with insurance leaders – Progressive’s Tricia Griffith bit back at allegations of “woke” hiring practices, while in the UK Aviva CEO Amanda Blanc hit back on who should be wearing the “trousers” – to a social media storm that saw Allstate and Progressive cut ties with an insurance agency over a sign that mocked Juneteenth, the insurance industry has found itself stuck wrestling with balancing visibility and progress with the ever-present risk of cultural and political division.

Yet another bone of contention that has dogged commercial lines businesses is the ‘E’ in ESG, and growing climate concerns. Anti-fossil fuel underwriting activists have become a common sight at insurance HQs and annual general meetings across the globe, while activist investors – like Green Century Capital Management and As You Sow – have also pushed for environmentally inspired change.

Big businesses across the country are having to navigate the choppy waters of delivering on DE&I and ESG pledges and being seen to act in tune with their stated values, all while keeping numerous stakeholders happy and – the big one – keeping the money flowing in.

“Increasingly, corporations are finding themselves called on to become—willingly or unwillingly—participants in a range of social and political controversies,” according a 2018 report published in the Harvard Law School Forum on Corporate Governance.

And while they may have become “accustomed” to consumer-driven activism, institutional investors and other stakeholders are “asking companies to take public stances on a wide array of topics, some of which may be wholly unrelated to the targeted company’s corporate purpose,” the report said.

Attempting to remain “neutral” does not necessarily produce results either, it found.

Delta Airlines lost a $38 million tax break amid “fierce political pushback” from the State of Georgia after it ended a travel discount for National Rifle Association members attending the pro-gun group’s annual conference, in one example given.

So just how can insurance businesses – and big business more generally – navigate this reputational minefield? There is no easy answer, according to Kossovsky. Impacts cannot necessarily be captured in profit and loss, and any financial hit can take time to emerge. However, a critical element is planning and preparation.

Kossovsky said: “The real question is, how do we find out what our stakeholders expect, and how do we minimise leaving them angry or disappointed with our decision such that the economic consequences of our decision and their reaction is the least damaging to the firm, and therefore less likely to trigger second guessing by our investors?”

Steel City Re refers to contentious sleeper matters such as Roe v Wade as “jack in the box issues”. This, according to Kossovsky, is because they “surprise you and almost everybody jumps when the damn thing pops.”

When the Supreme Court overturned Roe v Wade in June, sparking fears over the outlawing of abortion in some states, some carriers and broking businesses assured staff they would widen benefits plans to cover travel costs to access medical services. Others were quiet.

It remains to be seen how approaches to Roe v Wade will ultimately affect insurance firms, but one business that did confirm changes, DICK’S Sporting Goods, is now facing a legal challenge over its special travel benefit. The retailer is no stranger to taking a stand; its 2018 decision to pull back from the gun business and associated bad publicity cost it “about a quarter of a billion dollars”, then-CEO Ed Stack told Business Insider.

Reputational risks around polarizing ESG topics require “total company coordination and focus”, according to Kossovsky.

“What firms should be doing is establishing a standing process, an organization of a body of senior executives, that feeds and informs the board, such that the firm is always in a state of awareness of what a stakeholders expect,” Kossovsky said.

Having this in place acts as a “defensive tool” against both potential litigators and the “court of public opinion,” said Kossovsky.

“A company that can point to a reliable, repeatable standing process can defend its decisions because it cannot be accused of being capricious and arbitrary,” Kossovsky continued.

This, Kossovsky said, is valuable under Delaware Law because “decisions made through a well-established process are essentially protected under the Delaware Business judgment rule.”

As recently as a “couple of years ago”, Steel City Re was recommending that organizations should not take a position on binary issues – but as political and cultural tensions have ramped up, the business has developed some reservations about this approach to glass “half empty or half full” questions.

“We [used to say], there are ways to frame the question to argue that the glass is twice as big as it needs to be, and by taking that position, both sides could find their answer,” he said. “But it is becoming very hard to say the glass is twice as big as it needs to be when the stakeholders are expecting an unambiguous position.”

The only way to respond to that pressure, according to Kossovsky, “is through a thoughtful and dutiful process” – ideally, according to Kossovsky, “authenticated by insurance.”