It seems not a year goes by without a new regulatory or environmental change that becomes all anyone can talk about. GDPR (2018), Brexit (2019), Covid (2020), Climate Change (2021), Claims Inflation (2022).
With each, we add yet more rules, more regulations and more red tape on top of an already broken system, adding yet more layers of complexity without ever getting to the real root of the problem we’re meant to be solving.
And now it’s the turn of ‘Consumer Duty’ in 2023. What sounds like a step in the right direction, to improve customer protection and create better outcomes, has all the qualities of regulatory bluewashing, where a deceptive slogan overstates an industry’s commitment to responsible social practice and gives us the illusion that we’re creating better consumer outcomes, when we’re merely tinkering at the edges.
Let’s take home insurance. A good outcome from a customer perspective would be for me to know that when my fence blows over in the wind, or my roof tiles fall off, that the cost to repair will be covered. 70% of such claims are automatically denied which makes a mockery of insurers telling us that 97% of claims are paid. Ah, only ‘valid’ claims you retort. Silly me, should have known better.
Or perhaps motor insurance. A good outcome from a customer perspective would be for me to know that when accidents happen, such as a punctured tire, that I’m not on my own to sort it out at my own expense. Or, having a simple way to cover the claims excess I maxed out in order to get the cheapest quote (this is particularly relevant to vulnerable customers in short or long term financial difficulties who are most at risk of doing exactly that).
Consumer Duty will introduce an obligation to design products and services that meet the needs, characteristics and requirements of a specific customer segment, but I don’t see that happening whilst the industry continues to cling to a short-term model, exacerbated by the price comparison websites, where there is a relentless drive to remove valuable cover and deny ever more claims in order to maintain margins and drive price down further. Insurance isn’t a product that is designed to be used, and therefore valued. And you wonder why it’s a grudge purchase??
What we really need is to think upside-down and move from thinking short-term to long-term if we are truly interested in creating better outcomes.
Let’s start with preventing claims altogether. Whether it’s my home or my car, the technology exists to monitor, alert and mitigate against loss but the problem is no home insurer wants to cover the cost of additional hardware to monitor leaks or improve security that are the key to better outcomes – the margins simply aren’t there on an annual policy where customers are given no reason not to churn at renewal.
But what if we thought long-term? As a customer I would willingly buy an insurance-backed product where the focus is on prevention first and claim second, where the insurer could purchase the hardware leveraging its economies of scale and which could be spread over a 36 month policy, or an option for a service package where a qualified contractor could pro-actively do a winter-readiness check to ensure my drains aren’t blocked. This has the potential for creating great products if I can see the cost of this is cheaper than the alternative or which gives me complete peace of mind. It would also help avoid surge/supply chain issues by switching the focus to preventive maintenance. Or why not go further and create an embedded insurance product that comes with my mortgage over a 25 year term? That would align the interests of homeowners, the banks (who have a financial interest in the value of the property) and the insurers and allows the cost to be shared equitably across all three, creating a possible framework for investing in the climate change measures we know we’ll all need but which we currently don’t price in. As a motorist, I’d also be prepared to buy an insurance backed product that included roadside assistance for when my tire does get a flat, as well as a smart repairer that could take out any dents and scratches and make my car look like new.
The problem is I don’t see an insurance sector that wants to think long-term and develop products and services that are genuinely valuable. Everything we do tells me the opposite, that we’re prepared to create products that don’t offer great value in order to remain ‘competitive’ for the next shareholder update and which pushes all of the hassle onto customers to sort out their own problems. If this is the case, Consumer Duty seems to be another opportunity to keep everyone talking a good talk, without having to confront the real issues. Time for change, anyone? Do let me know your thoughts; michael.lewis@claimtechnology.co.uk.
