More Regulation Is Futile

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I caught up with a colleague last Friday and at one point our conversation turned to the front page story Life Insurance Rorts Exposed in that day’s Financial Review. The thrust of the report was that the current laws and regulations relating to the insurance industry need to be addressed, yet again. The quick grab solution seems to be that whenever rogue conduct in the financial industry is exposed we need to tighten regulation.

Irrespective of whether tightening of regulation is required or not, I firmly believe that regulation alone is futile and ineffective. The insurance industry is already highly regulated and yet this hasn’t thwarted the unacceptable behaviour.

One of most telling quotes (on Page 2) is from the regulator’s report on the findings of the investigation: “It is damning of the culture, the conflicts of interest and the distortions created by up-front commission payments”. This whole issue of self-serving behaviour within the insurance industry is not just about regulation; it is about Values and culture.

Values underpin culture. The Core Values in any organisation are deeply ingrained principles that guide all of a company’s behaviour and actions; they serve as its cultural cornerstones. They are the signposts that guide how people within the company interact with each other and with all other stakeholders. We usually think of Values as being positive, yet there are just as many negative Values that creep unwritten into an organisation.

I have no doubt that all of the financial institutions involved have stated core Values. The real questions are whether they are alive and being lived and modelled daily by the leaders of the organisation, or are they merely a wall decoration near the coffee machine? If they are not being lived, and clearly they are not in some financial institutions, then damaging unwritten values are at play and have caused the organisation’s Core Values to be subverted.

Culture is the combination of shared values, norms, and expectations that govern the way people approach their work and interact with each other – it determines the behaviours that are rewarded and punished. In short, culture is “the way we do things in this company.”

The insurance industry must take a closer look at member organisation’s cultures and what messages are being sent to their people by the behaviour of those organisations’ leaders; behaviour that is being signalled both symbolically and systemically about what is acceptable (or not). There is no doubt leaders are the single biggest impact on their company’s culture – what expectations and standards are they communicating?

Symbols are the significant events or decisions in a company to which people attribute meaning. Symbols are important as they relate to a pre-existing perception of what is valued. As an example, people in sales are favoured over all others in the company because they are delivering the required results; first to get new phones, new tablets, expenses rarely questioned – yet no one questions how the results are being attained. This is a powerful message to everyone in the company about what’s important.

Systems are in lag as they result from past decisions and even past value sets of previous leaders. Systems can promote behaviour that people may acknowledge as inappropriate. For example, a company may have a stated Value of Customer Care, yet the remuneration system incentivises people on sales revenue generated and not customer satisfaction. The outcome is obvious because the unwritten message is clear that sales are valued ahead of customers.

There is no doubt that change in the insurance industry is needed. While regulatory authorities may place attention on changes to the legal framework, companies in all industries can begin to lift standards and expectations by looking closely at what underpins their culture and the messages sent internally about how people are expected to behave. Failure to do so will continue to fuel the public’s widespread cynicism toward businesses today and continuing mistrust of corporations.


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