Become Actively Engaged: Social Media Is Here to Stay

Vol. 14 No. 2

Susan Jennings is an attorney in the Dallas, Texas area who has worked extensively in the field of insurance regulation. She is a past chair of the TIPS Corporate Counsel Committee and can be reached at granada333@aol.com. Olivia Jennings is an associate attorney in the litigation department of the Dallas office of Gibson, Dunn & Crutcher LLP. She can be reached at ojennings@gibsondunn.com.

Corporations’ interest in social media has exploded. Social media has opened new opportunities for corporations in every industry to build their company’s brand, learn more about their consumers, and educate the public cheaply and easily. But these opportunities have brought with them issues that may catch companies off guard, especially in the highly regulated insurance industry.

Social Media Poses Risks, Creates Opportunities

Negative attention can spread across the web in a matter of minutes. Last summer, Delta Airlines unexpectedly faced a public relations nightmare. Two soldiers, returning from Afghanistan with 32 others from their unit, were transferring onto a Delta flight in the Atlanta airport when the airline advised them that their fourth bag would not be checked for free, as the soldiers had understood according to the airline’s special policy for the military. Instead, Delta charged them each $200  to check the bags to the soldiers’ final destination. Before boarding their flight, the soldiers made a video complaining of the charges and posted it on YouTube. By the time they landed, the video had gone viral and had been viewed more than 200,000 times. Suddenly, Delta was facing a public outcry, and within a day, Delta was forced to change its policy, refund all related charges, and issue a public apology.

But just as companies can be hit by social media outrage, a company can use social media to get out in front of public opinion and quickly address any rising issues. For example, Gilbert Gottfried, the voice of the AFLAC duck in that company’s television commercials, made disparaging comments about Japan after the 2011 earthquake and tsunami. AFLAC, which conducts business in Japan, was outraged. Using its Facebook page, the company issued a public apology, fired Gottfried, and reached out directly to the public for damage control. By moving quickly and publicly, AFLAC helped avert a disaster and saved its reputation.

Social media is not just for public relations—it can help boost a company’s bottom line. In January 2011, the McKinsey Quarterly report found that companies utilizing Web 2.0 technologies “significantly improv[ed] their reported performance.” McKinsey & Company discovered that “fully networked enterprises are not only more likely to be market leaders or to be gaining market share, but also use management practices that lead to margins higher than those of companies using the web in more limited ways.” Michael Chui, “Rise of the Networked Enterprise: Web 2.0 Finds Its Payday,” McKinsey Quarterly, March 21, 2011, available at http://tinyurl.com/2evphjf.

 

Insurance Companies Wary in Uncertain Regulatory Environment

As the benefits of social media become clear, the financial services industry in particular has wrestled with how to join in and reap the rewards of an effective social media strategy. Financial services companies have rightly hesitated as a result of facing outdated regulations and insufficient guidance from their regulators. Additionally, many corporate executives are “digital immigrants” and do not fully appreciate the positive power of this new tool. Financial firms often are unknowingly vulnerable, having no contingency plans for facing social media attacks and no social media policies or guidance for their employees or marketing representatives.

Insurance companies that market noninvestment products are heavily regulated by state insurance departments, but social media guidance from these regulators has been slow in coming.

As this article is written, no state insurance department has implemented regulations specifically addressed to insurance companies’ use of social media. At most, regulatory authorities have hastily inserted the word “Internet” or “electronic” in existing regulations, maintaining a regulatory approach and structure that was not designed for 21st century communications.

In most states, all advertising promoting a company’s insurance products must be approved by the company’s compliance department and retained for potential review by the state insurance department. This begs the question: When does content on social media constitute advertising?

If a conversation begins on a company’s Facebook page, Twitter, or another social media outlet controlled by the insurer, and the communication could be considered a customer complaint, most insurance regulatory experts believe states require that the complaint be answered by the insurance company, entered on a complaint log, and retained for a period of years for possible review by the state regulator. These burdensome processes greatly impede the rapid response necessary to maintain a robust social media presence.

The National Association of Insurance Commissioners (NAIC) has begun to raise awareness about this regulatory impediment. NAIC created a social media working group that recently issued a draft white paper studying the use of social media in insurance. The paper emphasizes the necessity of insurers to adopt policies, procedures, and controls for regulatory compliance when using social media communication.

Without direct guidance from the insurance regulators, many insurance carriers have looked to regulations from the Financial Industry Regulatory Authority (FINRA) for help (as did the NAIC in its draft white paper). FINRA regulates the activities of brokers in the sale of investment products at the national level and has directly addressed several social media issues. Some aspects of this guidance have been unclear, particularly in regard to brokers’ conversations with their clients via social media. Since August 3, 2011, when FINRA published a notice in the Federal Register of proposed changes to FINRA Rule 2210 intending to clarify the rules regarding communications by financial representatives through social media, several FINRA communications have addressed this subject. FINRA has continued to frequently update and adjust its social media policies. Anyone formulating or reviewing a financial services company’s policy should review the latest changes at http://www.finra.org/Industry/Regulation/RuleFilings/2011/P123894.

 

Insurance Companies Must Address Social Media Now

Although insurance companies are waiting for regulations to catch up with the new Web 2.0 world, they cannot ignore the opportunities and risks social media brings them today.

Companies should take the following action steps:

• Embrace social media. It is here to stay.

• Design a contingency plan to prepare for public attacks through social media.

• Review social media policies. Failure to update company policies can leave companies vulnerable to their employees’ and/or representatives’ thoughtless actions.

• Communicate and document the communication of the updated social media policy to employees and representatives.

• Establish and implement a compliance program to ensure that the social media policy is being followed.

Each company should carefully consider how it can effectively use the Internet and social media to improve all aspects of its marketing, communication, and public relations. What kind of social media presence best fits the company’s brand? Has it been missing a chance to receive beneficial feedback from its customers? How can the company engage its employees or the public to its own benefit?

Companies also can be attacked in the social media world, rightly or wrongly. Too many companies only consider their offense. A responsible company also must plan a good defensive strategy to mitigate the effects of such attacks. What department should coordinate the response? Which method of communication would be most effective and efficient?

Finally, a corporation must be aware that its representatives and employees are using social media, regardless of whether the company’s policy allows it or not. In a 2010 survey of financial advisors conducted by Socialware, 60 percent of the respondents were using social media for business purposes. Of this group, only 57 percent were aware that their companies had social networking policies. Most alarmingly, 39 percent of these social media users were communicating via social media while representing companies that prohibited them from using Facebook, LinkedIn, and Twitter.

Considering these survey results, companies should be asking several questions. How can a company leverage this already existing social media presence to its own benefit? Is the company properly monitoring its representatives’ communications and archiving when required? How can the company encourage its employees and representatives to engage with and follow the company’s social media strategy and policies?

Despite the uncertain regulatory environment, insurance companies cannot sit on the sidelines and wait to address social media’s implications for their business. Web 2.0 is here. Prepare to engage.

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