Today, the government has announced that firms that overcharge loyal customers could be hit with direct fines under new plans being unveiled this morning by the Government. The move will help tackle the loyalty penalty and practices such as subscription traps and unfair cancellation charges.
Responding to the news, Tony Tarquini, European insurance director at Pegasystems explains that currently new customers-only pricing is the sole way for insurers to secure customers via comparison websites who drive demand for lowest possible price, therefore today’s announcement means that insurance companies will need to up their game in terms of offering a more curated policy to entice new customers.
“Insurance comparison sites drive a lowest price agenda, but do little to ensure the client gets the right type of cover. For example, if someone relies on their car to get to work, having a courtesy car in the event of an accident may be required, compared to an individual who only drives at the weekends.
“Many policies cut this service out to make the upfront price cheaper. This means that the policyholder only really understands what they have bought once they have an accident which puts their car off the road. The same applies to a broad range of other areas of cover, whereby policy elements that would be considered a necessity have slowly been turned into “optional extras”.
“The solution lies in the application of artificial intelligence into the underwriting process, to make both pricing and levels of cover suitable for an individual policyholder. By understanding the individual customer and engaging with them digitally to make sure they buy a suitable product rather than the cheapest will move the agenda away from being 100% about price and help to address the loss leaders insurers are compelled to sell in order to attract new customers.”
Insurance Edge Comment:
The super-complaint by Citizens Advice seems to have worked some magic with the government, who are keen to be seen as consumer-friendly. In reality central government and local councils offer the worst levels of take-it-or-leave-it service in the known Universe.
Can you switch councils to get your bins emptied every week, or the holes in the roads fixed by a neighbouring County Council? Nope. Find your local Police will not take your burglary report seriously? Try taking your custom elesewhere and you’ll most likely be arrested by the Twitter Thought Police for saying bad words about lazy local Plod. No option to shop around and `go compare’ in the public sector is there?
Of course there is a valid point regarding insurance customers paying too much for a product when they have not claimed in say a decade. Some within the industry have definitely taken people for mugs in the car insurance and home insurance market, for decades, by simply jacking up premiums by 10% a year, regardless of circumstances. It is rough justice that now, as an industry, everyone is paying the price for those who really milked their loyal customers.
In a way, this new legislation and fines system will sort out the workers from the shirkers when it comes to offering the most competitive insurance deals online. Those companies who can accurately calculate risk vs consumer rewards will hoover up more customers. Others will go to the wall, unable to lure people in with a one year cheapo deal.
That can only be a good thing.