An overwhelming 83% of insurance executives believe the industry falls “well short” in the area of social capital risk management, a survey by actuarial firm Finity has found.

More than nine in ten of the 60 executives polled say social capital – defined as the state of a company’s relationships with shareholders, customers, staff and other stakeholders – is equally as important as financial capital.

But just under half felt their companies were on the right track, with 62% of the view that management was “a long way behind” in best practice and another 21% saying “nothing effective” was being done to improve the social capital deficit.

“The organisations I’m talking with are increasingly dissatisfied with their current approaches and measurement tools, and are looking for new frameworks that better identify weaknesses and blind spots, and provide leading indicators,” Finity Principal Hadyn Bernau said.

Social capital is worth about 40% of the total value of an insurance company on average, which makes it even more critical that insurers address their weakness in this poorly understood area.

“Compared to financial, human and intellectual capital which makes up the other 60%, it’s poorly understood, poorly measured, poorly managed," Mr Bernau told insuranceNEWS.com.au.

"There are financial professionals like accountants, actuaries and auditors who apply all sorts of rigour to financial capital. HR professionals and lawyers look after the human and intellectual capital. But there is a lack of rigour and science around social capital, and a lack of leading and early warning indicators.” 

Pressure on the industry and the wider financial services sector to beef up its social capital risk management has increased sharply after the Hayne royal commission found serious governance and culture lapses.

Last November the Australian Prudential Regulation Authority put out an information paper, outlining a tougher approach towards governance, culture, remuneration and accountability.

“Australia’s banks, insurers and superannuation licensees are financially sound and resilient, but a strong balance sheet alone is not enough for institutions to remain in good prudential health,” APRA Deputy Chairman John Lonsdale said.

“Although governance, culture remuneration and accountability are often termed ‘non-financial risks’, a failure to address weaknesses in these areas can cause major financial losses through reputation damage, fines and expensive remediation programs.”