How regulation is bringing the customer to the forefront of insurance

A new wave of regulations from the FCA has changed buying habits. It could be a game-changer in how insurers offer value for money
Insurance Customer Experience Illo

The insurance industry has undergone a revolution of late. New regulations from the Financial Conduct Authority (FCA) have changed not only the way that insurers price their products, but how consumers are buying their policies.

The first of these was the General Insurance Pricing Practices (GIPP), which came into force at the beginning of the year.

GIPP effectively banned the practice of price walking. This was where insurers would offer introductory discounts for new customers before increasing premiums at renewal to claw back first-year losses and turn a profit.

Price walking was particularly prevalent in the home and car insurance markets. This resulted in many customers looking for cheaper premiums on price comparison websites when their policies came up for renewal.

The introduction of GIPP then triggered the largest single-month price rise on record for new insurance policies, according to data from Consumer Intelligence, but prices for renewals largely stayed the same or even fell slightly.

Changing the game

This has prompted a radical shift in customer buying habits, according to Consumer Intelligence’s head of consumer strategy, Catherine Carey. Data from the insight firm shows that the number of people shopping around for their insurance at renewal has hit historic lows since the introduction of GIPP.

For insurers, this means that the way they interact with their customers is changing. 

“It could be argued that brands no longer need to put as much effort into delivering a great experience if their customers are going to stay put regardless,” Carey says. “On the flip side, though, a poor experience could be the trigger that pushes a customer back out into the market.”

But Dan King, co-founder of market intelligence firm Insurance DataLab, believes that customer experience has never been more important for the insurance industry. “With insurers no longer able to compete as effectively on price, customer experience and the value of these policies could soon be the defining factor in choosing an insurance provider,” he says.

LV= General Insurance’s head of customer experience, Charlotte Rae, agrees. She says the new regulations should act as a catalyst for insurers to improve their customer experience. “If insurers want to attract new customers, they can’t rely on discounted price messaging, but rather must enhance their customer experience to rival their competitors,” she says.

In addition to GIPP, the FCA has introduced two other new regulatory initiatives this year: Consumer Duty and Fair Value. Both require insurers to monitor their policies’ value for money, as well as the customer experience on offer. It all returns the focus to keeping the customer happy. 

A new Goliath

What’s more, King points to Amazon’s entry into the insurance market as a potential sign of things to come. The internet giant now offers insurance products from three providers through its UK website. Users can compare the value and service levels of the different policies, not just the final price. This isn’t a common feature on price comparison websites and could “be a game-changer for insurance,” King says.

With insurers no longer able to compete as effectively on price, customer experience and the value of these policies could soon be the defining factor

But James Daley, managing director of consumer group Fairer Finance, fears the new regulations may not have the effect the FCA had hoped for, of driving increased consumer value. “Without the same pricing flexibility, I think we’ll see insurers continue to hollow out their products – looking to increase margins by reducing cover levels and increasing excesses,” he says.

Daley thinks this is a concern for the insurance industry, with customers frequently not understanding the exclusions and restrictions that apply to many of the policies they buy.

“Good customer experience in insurance has to start with setting customers’ expectations in the right place,” he says. “Firms need to get better at explaining exactly what’s covered and, more importantly, what’s not covered when customers are taking out the policy.”

For Daley, this means that insurers need to stop listening to what customers are asking for and focus on what they need. “Customers just want their cover to be set up as easily as possible and peace of mind that if they need to claim it will be quick to process,” he says. “But firms need to be aware that what customers want and what they need are not always the same thing.”

Just keep communicating

Instead, Daley says that insurers need to stop fixating on speed and look to improve the customers’ understanding of the offer. “Firms need to communicate clearly – through the application journey, the policy documentation, the letters and emails they send to customers,” he says. “That means eliminating jargon and using plain language.

“Given that this may be the only time when you have your customers’ full attention, it’s right to ensure that they understand what they’re buying and what they’re not buying.”

“If firms manage all of that, they’ll create the conditions to surprise and delight their customers, rather than baking in guaranteed disappointment for a significant minority,” he adds.

But while Daley may be an advocate of providing what customers need rather than just what they’re asking for, Carey says it is still important that insurers listen to their customers.

“It often feels as if there’s a disconnect between what customers want from their experience and what insurers think their customer experience should be,” she says. “At their most vulnerable, consumers want reassurance through human connection, whether it’s a friendly voice on the other end of the phone or an empathetic exchange on live chat.

“In contrast, there is a focus within the industry on moving towards automation and online claims handling. It’s important to find a balance.”

One thing is certain, though. With the FCA increasingly focused on the value offered to customers, insurers need to make sure the customer is at the heart of what they do. If they don’t, they not only risk losing loyal customers at a time when new business is increasingly hard to win, but they could also face some tough questions from the regulator.

And neither of those outcomes will be a good experience for anybody.

Are insurers becoming lifestyle brands?

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An insurance policy has never been the most exciting of purchases. Recently, insurers such as Vitality and AIG-linked startup Yulife have been looking to change that by advertising themselves as lifestyle brands.

But will insurers ever truly become a key part of their customers’ day-to-day lives? 

Fairer Finance’s Daley is a firm believer in the partnership approach. He says that insurance needs to change its relationship with customers and that insurers should be seen as partners in risk, rather than at odds with them.

“There is an inherent and inconvenient conflict between shareholder and customer for most insurers, and firms need to find ways to better align these interests,” he says. “It’s crucial that insurers keep the relationship alive after a policy is bought. Too often they just disappear into the background.

“They can do this via more frequent communication by email and SMS, and integrating reward schemes and offers into their proposition so that customers engage with them on a more regular basis, providing more opportunities for those important messages to be disseminated and understood.”

Ultimately, though, it should all come down to the value offered by the interaction, not whether it makes for a nice advertising gimmick, according to Charlotte Rae, head of customer experience at LV= General Insurance.

“What has always been important, especially for time-poor customers, is that every interaction with their insurer must be quality over quantity,” she comments. “This doesn’t mean there aren’t opportunities to surprise and delight customers – which we take pride in doing – but the main objective is to understand customers’ needs and how, what and when they want us to help.”