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Navigating Regulatory Waters: Friend or Food? How To Stay Ahead in Financial Services

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Already we're seeing some financial services brands - banks in particular - meet or exceed community expectations of how to help their customers deal with coronavirus consequences. While that may have been thanks to some firm Federal guidance, it also reflects their bruising Royal Commission experience. Either way, it sets the tone for other finance sector responses. If you fall into the gap - your leadership voice, decisions or brand behaviour right now don't meet community standards or lacks empathy - you also face serious reputation risk. 

1.   Market Feedback

A. Team Australia, WhatsApp and uncertainty: implications for you

Rising community standards – and emerging criticism of businesses

There’s a small but growing gap emerging between how businesses are handling COVID-19 versus the expectations of the community, their clients, members or customers.

This is particularly important if you have consumer or small / medium business relationships or stakeholders because of the perceived and real power imbalances and fairness in those relationships, and Australia’s particular sensitivity to David and Goliath (“big corporate vs the battler”) dynamics.

One life insurer last week tightened policy conditions for new members. By contrast, several health insurers announced several new support measures, including expanding hospital cover and cancelling planned premium increases.

The perceived gap was stark, even though life and health insurance are very different types of business. It reflects a growing trend from businesses including financial services to step up to support the community and join ‘Team Australia’.

Those who don’t or are actively seen to move against smaller counter-parties will risk reputation damage.

Last week the President of the Respiratory Physicians College, in what I imagine was one of the busiest weeks of his tenure, took time out to publicly criticise a life insurer who began to exclude COVID-19. That insurer has now clarified they will cover any existing retail and group policyholders for COVID-19. Even saying new policies wouldn’t cover from COVID19 to people who have symptoms is risk from a reputation point of view, despite it being accepted practice in life insurance at any other time. As industry people we know insurers can't cover or underwrite pre-existing conditions. Consumers and media, however, don't want to hear it.

Real time mass messaging is a rising expectation

On the weekend Atlassian launched a government COVID-19 WhatsApp channel with Facebook and its subsidiary, WhatsApp. This is a significant step up in community communication for a government previously criticised for being slow and inconsistent with advice.

This now lifts the standard for businesses. Employee and community expectations of how quickly business can message are now higher than a few weeks ago. Some clients were looking at this weeks ago and privacy concerns were raised by employees. Those concerns will now largely will go away.

Could the “cure” be worse?

Government announcements of new measures, unprecedented commercial pressures and the dissolution of some normal business arrangements are creating great uncertainty.

In previous downturns associated with shocks (such as 9/11 and the GFC) I saw the uncertainty that followed the event as far more damaging to BAU than the event itself.  

Now, previous well accepted, long standing business practices and legally binding commercial arrangements are now in question or dissolving. So-called community standards – what’s acceptable or desirable corporate behaviour - has morphed also.

This, as many of you already know, has the potential to be incredibly destructive – if the rule of law and commerce are re-written, businesses will be stymied at every turn.

One example is the Prime Minister ordering a six month eviction freeze in retail properties. This is despite the proactive move by many landlords to provide rent relief and flexible conditions to tenants under pressure that considered the potential impact on both parties.

These are difficult policy decisions, but they can sting a leader’s ability to lead businesses through the crisis and retain some BAU or resume it later.

Discussions with law firms suggest the legal implications of COVID-19 are significant, particularly how companies use force majeure clauses or the doctrine of frustration, to renegotiate contractual obligations.

B. Universities fatiguing

Universities are now being expected to hand empty buildings to government for purposes such as retooling for manufacturing. This has implications of all sorts including for insurance.

Conversations suggest fatigue has set in for universities given they’ve been dealing with this issue almost from Day 1, when the original China travel bans began to affect international students.

C. Business insurance may not cover COVID-19

Business interruption insurance is generally part of property insurance. Mostly this applies to physical property loss, so most businesses can’t claim on their interruption insurance for COVID-19.

There are some write backs, but generally biosecurity events are excluded.  In the US, three states are saying they’ll legislate cover irrespective of the wording. 

Our client says that’s unlikely to happen here give it would potentially cripple that category of insurance in Australia.

Economic downturn has implications for buying cover and claims (will we see increasing fraud / arson?). 

C. Business insurance may not cover COVID-19

We mentioned last week that some managers were bringing forward out of cycle valuations and there will be wide-spread asset write downs and ongoing redemptions.

Anecdotally, office rent renegotiations, particularly for smaller footprint leases, are gathering momentum in our empty CBDs, as office tenants seek relief from landlords.

Two property assets have better prospects:

  • Food producing farms. Many are being spurred on by good seasonal conditions and unprecedented demand in part sparked by fear and panic-buying.
  • Industrial assets exposed to logistics. One national logistics firm is experiencing record volumes and their physical assets, including property, are fully deployed. A business owner whose business sells durable grocery items reports sales volumes are up about 400%.


E. Superannuation funds face withdrawals, but lifting communication

Liquidity remains the first and foremost issue facing superannuation funds.

Estimated fund withdrawals are expected to exceed $27bn and be as high as $60bn, though these are uncertain numbers.

Super fund messaging to members has in most instances focused on the risks of pulling money from accounts after such a sizeable drop in the market. Communication has stressed that withdrawing funds should only be done as a last resort as members risk having less money in retirement.

AustralianSuper sent a strongly worded message direct from CEO Ian Silk to members on the weekend. It’s more confident and clearer than earlier messages and mirrors the emerging tone of fund communication overall, after a slow start.

Website traffic, call and email volume continue are high with anecdotes and news highlighting major increases of 44% or far higher in daily call/email volumes.


2.   Management responses

Mental health is emerging as a significant issue for employees, clients and stakeholders.

A. Increase in reassurance and mental wellbeing measures

CEOs and management are trying to provide reassurance to staff affected by widespread news pictures of growing queues at Centrelink, but also dinner-table conversations about friends and family members losing jobs or getting sick.

Working-from-home arrangements can be isolating. Managers and internal communication teams are keeping up dialogue to keep employees reassured, engaged and to bolster morale.

Managers are taking a long view that employees who have been kept in the loop will more likely remain committed to the business vs those kept in the dark.

Many of you report that a calm, consistent tone of voice is important, and that you’ve reviewed your internal communication approach (see previous notes for how).

B. BAU (business as usual) favouring responsive companies

This kind of communication (reassuring, clear, calm and more frequent) is as important as COVID-19 comms for clients, investors and other stakeholders.

We mentioned last week some clients quickly pivoted their services and products to online. Those businesses have typically seen less disruption to BAU operations, and even have increased engagement with their own audiences compared to slower moving peers.

Tools already deployed successfully include digital communication offerings such as webinars and video conferences.

Regular engagement with audiences is seen as pivotal by some leaders who understand this period of uncertainty and heightened anxiety is when audiences need to hear from them most. They believe regular engagement now will help reinstate BAU as the initial shocks of COVID-19 wear off.

3.   CEO guidance regarding Coronavirus responses 

1. Test your BCP or crisis management team (CMT)

The ability of this team to function under pressure has a direct effect on the quality of your organisation’s response and reputation. Under pressure some people step up, but others go to flight or freeze. This is a good time to test and build skills so all function well.

For guidance on your CMT register for the COVID-19 Communication Response Kit.

2. Mind the gap: between your actions/communication and community expectations

A crisis team can lose touch over time with community expectations when immersed in their COVID-19 response, and likely necessarily in some ways, become blinkered.

The Kennedy presidential decisions and group dynamic around the “Bay of Pigs” fiasco in 1961 is used as a groupthink case study. Hallmarks of that group were that they were too cohesive and insulated from outsider views. This contributed directly to poor executive decision making.

Consider introducing an “outsider perspective” to your COVID19 team periodically – specifically, someone new who hasn’t been immersed in your team’s discussions.

This can be an independent consultant or ‘scrutineer’ (under a confidentiality agreement) or an empowered junior staff member who’s reading different media and circulating in different groups.

3. Reassess your reputation risks, even if just at a high level

The game has changed for many previous well accepted, long standing business practices and legally binding commercial arrangements. In this environment, so will so-called community standards – what’s acceptable or desirable corporate behaviour.

New reputation risks might be hard to assess how if you’ve been immersed in COVID19 for reasons described above. Consider outside help or assign a different group internally and get them some guidance from your corporate affairs function or BlueChip.

4.   Who to follow (repeated) 

In this section, we share what we see as the best current sources of information.

This is an excerpt from one of our client COVID-19 CEO response briefings. For more COVID-19 response resources and guidance, visit our COVID-19 Response page. 

If you’d like to discuss adjusting your communication strategy for the current times, please call us or fill out our contact form here.

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