Car insurance could well be facing The Great Reset. In January, new FCA rules come into effect which mean that those who stay loyal to their insurer, will expect – maybe even demand – an annual discount on their premium, not a price hike at renewal time, assuming their circumstances and the vehicle remain the same of course.
It could mean big changes, especially in the volume of people using comparison sites, or shopping around at brokers. It might also mean that brand values, extra rewards schemes and 5 star customer service at claims time replaces the focus on best price, which is currently the driving force in the car insurance market.
Mark Townsend, Managing Director of Motor & Home, BGL Insurance, looks at the impact of the FCA ruling on loyalty discounts.
There is a feeling bubbling across the entire insurance industry that significant change is coming, we’ve all known for a while but how we collectively navigate the journey over the next 12 months is going to, in my mind, generate one of the most interesting but potentially volatile periods our market has seen in a very long time. While such a major shift can lead to uncertainty, especially given the impact of the pandemic over the past 18 months, I believe it is the ideal opportunity for the insurance market to press the reset button.
The changes being introduced by the FCA Market Study on dual pricing forms part of the biggest regulatory shift since the ‘Treating Customers Fairly’ mandate came in to force back in 2006 and has the potential to completely alter the face of the industry. Even for the most sophisticated players, this is a pretty daunting prospect. Some argue that the regulator is being too heavy handed and across the industry, there is some quiet dissent, with whispers of not having enough time to implement changes. The regulator, however, is clear, excuses must stop and for an industry that claims to put the customer at the heart, now is the time to prove it.
At BGL, we have taken significant steps in recent years to place the customer centrally in all decision making and so it could be argued that for those businesses like us, we are now losing some flexibility. However, these changes will undoubtedly take customer commitment up a significant level, sifting out those that fail to fully embrace customer centricity.
The fundamental and enforced changes to the business model used across the entire industry is a huge wake up call for those who believed it was customer centric. Yet, while many accepted it wasn’t quite working as well as it could, few were unable to break from the mould because of how intrinsically linked the industry is, with market dynamics that prevented new approaches being tested.
Many questions remain on how re-adjusting the model will impact the bottom line and the reality is, some just will not survive these changes.
However, the core principles of what makes providers successful remains as important tomorrow, as it always has done in our continually evolving market – good products, exceptional service, managed costs and fair pricing. It’s the opportunities presented around product and service innovation that are the exciting elements in all of this and will certainly differentiate the leaders. This is where intermediaries, and the valuable agility lessons we have learned this year, will play a key role in helping insurer partners innovate and continue to reach target customers.
If managed in the right way, I’m confident that intermediaries will not only remain relevant during this period of industry change but will become an even stronger piece of the puzzle for their brand partners, insurers and customers. There are several reasons for this but essentially, brokers are often at the centre of successful insurance partnerships that have been created to withstand market changes, operating brands that are already established and trusted by consumers.
Furthermore, as providers look to differentiate beyond price, it will become increasingly important to fully understand customers and their individual requirements, meaning the investment in skills and tech capabilities that brokers have made in recent years, will allow insurers to extract meaningful insight that allows products and propositions to be tailored and targeted successfully. Finally, the efficient models that intermediaries have created will ensure that delivery costs remain low in a market where margins will be significantly squeezed.
It remains to be seen if the January 2022 deadline will be enough time for all of the changes to be made across the industry and I have no doubt the regulator will be closely tracking how the new rules are implemented. It won’t be good enough for players to push the boundaries with the changes, as has often happened historically. So, while the FCA might use this change to level the playing field and jolt the industry into action, the strongest teams will be the ones most prepared to handle the unexpected, react quickly and crucially, truly put their customers first.